Inflation

[divs4ever]

Correction for previous post, CPI was 7% in October, estimated CPI in December is 3.47% so far.

What does the Fed tend to do when CPI starts to fall? Fed funds rate follows the CPI... Question now is will they plateau? Do they need to plateau given they've been hiking into a falling CPI?
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the depends on how much extra 'adjusting of the data ' they are doing to the CPI

 

[over9k]

Correction for previous post, CPI was 7% in October, estimated CPI in December is 3.47% so far.

What does the Fed tend to do when CPI starts to fall? Fed funds rate follows the CPI... Question now is will they plateau? Do they need to plateau given they've been hiking into a falling CPI?
View attachment 150737

Also the question of whether they're going to stick with the year-on-year numbers or be all "well we had 8% one year and 3% the next so that's kind of 5.5% over the two years so we've gotta get down to 0% for a year or two to get back on the long term trend".

I can't think of how many times I've heard a phrase something like "PRICES are still far too high" rather than "Inflation is still far too high" in response to things like expectations of hitting a "high plateau" or words to that effect. I.e prices skyrocket and then hit a ceiling and just stay there so year-on-year might look like 0% but two year comparisons look like 10%+.

Referring to prices rather than inflation seems like a subtle distinction, but it isn't.

 

[over9k]

Another thing:

Last CPI numbers were great. Markets skyrocketed in response. FOR A DAY.

The same thing happened a couple months back or whenever it was we had a random decent data batch when we saw something like +4% for the nasdaq on the day and then a plummet for weeks right after.

And, well, take a look at markets since:



Despite the mooning ON THE DAY in response to any decent data drops we've had, there's been no actual trend break at all.

Bull markets climb a wall of worry and there's an awful lot of worry at the moment.

 

[over9k]

Point is, I'm wondering if the fed is thinking about overshooting 2% down to 1% or 0% or whatever not actually being a bad thing on account of the fact that the aforementioned "prices" are too high rather than "inflation" is too high.

As I pointed out, even a 0% inflation year-on-year might still look like a nightmare over a 2 year period if we had huge numbers the year prior. Under that context, it seems difficult to see the fed worrying about "overshooting" its tightening or what have you, especially with the labour market being so tight.

 

[mullokintyre]

Point is, I'm wondering if the fed is thinking about overshooting 2% down to 1% or 0% or whatever not actually being a bad thing on account of the fact that the aforementioned "prices" are too high rather than "inflation" is too high.

As I pointed out, even a 0% inflation year-on-year might still look like a nightmare over a 2 year period if we had huge numbers the year prior. Under that context, it seems difficult to see the fed worrying about "overshooting" its tightening or what have you, especially with the labour market being so tight.

I would disagree with that assessment.
Governments love inflation, paying back the mountain of loans they have with money that is worth less due to inflation has always been a desirable strategy. If they can keep inflation going at a little over 3% it makes nominal GDP look bigger, and lowers the real cost of repayments.
Mick

 

[InsvestoBoy]

I've been keeping an eye on inflation numbers given the recent downward revision to jobs numbers in the US. Looks the Fed is fast approaching their 2% target, current headline CPI projections by the Cleveland Fed (who've been quite accurate compared to official figures) is at 3.47% annualised, compared to ~7% in July 2022!
Core CPI also trending down with a substantial reduction.
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How much further will the Fed go?
According to historical data, market tends to bottom once the Fed is done cutting. So what does the Fed do once the CPI bottoms?

I really like the Cleveland Fed CPI nowcast model, because at least it's a model! Most people, especially on this forum, have opinions about inflation but base it on some crap they heard on YouTube or whatever.

I have never seen a single person who criticises CPI actually put forth a competing model, any assumptions or working evidence aside from dumb charts of the Feds balance sheet, useless M2 or garbage screenshots from ShadowStats.

 

[over9k]

I would disagree with that assessment.
Governments love inflation, paying back the mountain of loans they have with money that is worth less due to inflation has always been a desirable strategy. If they can keep inflation going at a little over 3% it makes nominal GDP look bigger, and lowers the real cost of repayments.
Mick

Accurate, normally I'd be 100% with you, but most of the normal rules have been thrown out the window of late.

The republicans have made a lot (like a LOT) of political hay out of the democrats not being able to control inflation, poor economic management etc etc of late for example. Even "only" 3% inflation still enables enough political soundbites to cook them because joe public's sitting there going "well yeah, prices haven't risen much THIS YEAR, but they're still way too high/just as high as they were last year".

It's all a game.

 

[mullokintyre]

I really like the Cleveland Fed CPI nowcast model, because at least it's a model! Most people, especially on this forum, have opinions about inflation but base it on some crap they heard on YouTube or whatever.

I have never seen a single person who criticises CPI actually put forth a competing model, any assumptions or working evidence aside from dumb charts of the Feds balance sheet, useless M2 or garbage screenshots from ShadowStats.

Hmm. When I was a little tacker, models were toys.
As I got older, models were hot looking sheilas who ponced up and down a catwalk showing ridiculously overpriced clothes.
Neither of them were much good for forecasting anything except costing you a lot of money.
Mick

 

[InsvestoBoy]

Hmm. When I was a little tacker, models were toys.
As I got older, models were hot looking sheilas who ponced up and down a catwalk showing ridiculously overpriced clothes.
Neither of them were much good for forecasting anything except costing you a lot of money.
Mick

It's a shame that during the course of your entire life you never encountered any other usage of the word 'model', but as you surely learned graduating from toys to "sheilas", a word can have more than one meaning.

 

[waterbottle]

Point is, I'm wondering if the fed is thinking about overshooting 2% down to 1% or 0% or whatever not actually being a bad thing on account of the fact that the aforementioned "prices" are too high rather than "inflation" is too high.

As I pointed out, even a 0% inflation year-on-year might still look like a nightmare over a 2 year period if we had huge numbers the year prior. Under that context, it seems difficult to see the fed worrying about "overshooting" its tightening or what have you, especially with the labour market being so tight.

A valid point given inflation targeting is so arbitrary.
Given the recent trends, the difference in time between a CPI of 3.5% (I. E. Current projected CPI for December) and 0% seems like a few months. Remains to be seen what metric they will use but then again this isn't a science

 

[InsvestoBoy]

A valid point given inflation targeting is so arbitrary.
Given the recent trends, the difference in time between a CPI of 3.5% (I. E. Current projected CPI for December) and 0% seems like a few months. Remains to be seen what metric they will use but then again this isn't a science

The history of the 2% inflation target is even more absurdly arbitrary than you might know.

Worth a read https://www.nytimes.com/2014/12/21/...ion-target-became-global-economic-gospel.html

but I will quote the pertinent

Once the law was enacted, though, there was the difficult question of what the inflation target should be. Zero percent? Two percent? Five percent?

Mr. Brash and Mr. Caygill got a head start on an answer from an offhand comment made during a television interview in 1988. Roger Douglas, Mr. Caygill’s predecessor as finance minister, had been seeking to dissuade New Zealanders from thinking that the central bank would be content with high inflation, and so he said in an interview that he was aiming for inflation of around zero to 1 percent.
“It was almost a chance remark,” Mr. Brash said in a recent interview. “The figure was plucked out of the air to influence the public’s expectations.”

 

[mullokintyre]

yeah, well I guess seeing as you are only an investor boy as distinct from an investor man, the subtleties of the English language and its usage sometimes escapes you.
Mick

 

[over9k]

Is that nutjob still going on?

Just block him, I have.

 

[wayneL]

It's a shame that during the course of your entire life you never encountered any other usage of the word 'model', but as you surely learned graduating from toys to "sheilas", a word can have more than one meaning.

Dude, did you study chaos theory in that pissant useless University you attended?

Models are only as good as the stupid inputs, which are usually stupid, judging by the usual results

 

[InsvestoBoy]

Dude, did you study chaos theory in that pissant useless University you attended?

Models are only as good as the stupid inputs, which are usually stupid, judging by the usual results

Another flub who has nothing but criticism? If you think it's dumb, show something better that can be critiqued... preferably something that isn't a Wall Street Silver screenshot.

Imagine making a nowcasting model this good and people say the stupid things they are saying in this thread (h/t @fernavid on Twitter)



It's not hard to google your way to the inputs of the model, they're not secret.

 

[divs4ever]

Another flub who has nothing but criticism? If you think it's dumb, show something better that can be critiqued... preferably something that isn't a Wall Street Silver screenshot.

Imagine making a nowcasting model this good and people say the stupid things they are saying in this thread (h/t @fernavid on Twitter)

View attachment 150763

It's not hard to google your way to the inputs of the model, they're not secret.

looks like the Cleveland Fed needs a new forecaster since the start of 2021 , however it is more likely the input data has been corrupted ( or the modeler )

 

[wayneL]

Did you forget the lessons of chaos?

Another flub who has nothing but criticism? If you think it's dumb, show something better that can be critiqued... preferably something that isn't a Wall Street Silver screenshot.

Imagine making a nowcasting model this good and people say the stupid things they are saying in this thread (h/t @fernavid on Twitter)

View attachment 150763

It's not hard to google your way to the inputs of the model, they're not secret.

You have forgotten how chaos works... And confirmation bias is perhaps the most stupid of the cognitive biases.

Back to school, bruh.

 

[Value Collector]

I would disagree with that assessment.
Governments love inflation, paying back the mountain of loans they have with money that is worth less due to inflation has always been a desirable strategy. If they can keep inflation going at a little over 3% it makes nominal GDP look bigger, and lowers the real cost of repayments.
Mick

Not to mention tax bracket creep pushes more people into the higher tax brackets and the inflated asset prices causes more capital gains tax.

 

[Value Collector]

Hmm. When I was a little tacker, models were toys.
As I got older, models were hot looking sheilas who ponced up and down a catwalk showing ridiculously overpriced clothes.
Neither of them were much good for forecasting anything except costing you a lot of money.
Mick

I thought you had some sort of engineering background? I am pretty sure both practical and digital models are used to forecasting performance of structures etc.

 

[frugal.rock]

When I went to "school", the data source information and inputs were a required label for the graphic output, without which, we were taught to question the integrity of the data presented.
Just saying.