The latest consumer price index (CPI) numbers came in near or slightly below expectations. The CPI rose 0.3% for April 2024. The year-over-year CPI now stands at 3.4%.
The median CPI also rose 0.3% in April. The year-over-year median CPI stands at 4.5%.
As this CNBC article indicates, “inflation eased slightly in April”. Of course, it only eased in the sense that the rate was slightly lower than the month before. But it’s not as if prices have come down. They keep going up. Prices are now 0.3% higher than they were from the significantly higher prices paid from the month before.
Even while some people celebrate price inflation coming down, it is still not close to the Fed’s 2% target. And let’s not forget that the Fed said a few years ago that it would shoot for a 2% average over time. If this were the case, we would need to see price inflation fall below the Fed’s 2% target, but we don’t hear about that average thing anymore.
The main sentiment coming out of the CPI report is that it has come down sufficiently that we can hope for a Fed rate cut in September. The odds of a September rate cut went above 50% after the CPI report was released.
Markets React
In bubble world, all that matters is a prospect of looser monetary policy in the future. Because inflation is seen as coming down, the market anticipates future rate cuts by the Fed. It doesn’t matter to investors that the yield curve has been inverted for almost a year and a half.
On the news, just about everything soared. US indexes, bonds, gold, silver, and even Bitcoin all went up significantly.
US indexes are at or near all-time highs. The Dow Jones is very close to surpassing the 40,000 mark for the first time.
The irrational exuberance continues, and it is all built on the back of Fed policy and easy money. Maybe this bubble will last long enough to get past the November elections.
It is still interesting that the Fed is even discussing a looser policy at this point when markets are roaring and the CPI numbers are still above 3% annually. This means that Fed officials are not completely stupid. They are aware of the risks here. They know that a big crash of the Everything Bubble may be coming. They know that some kind of a financial crisis in the somewhat near future is quite possible.
If they didn’t believe these things, then there would be no need to even talk about lowering rates. They would be insistent that monetary policy would be tight until we see a return of 2% annual price inflation.