In January of the new year, consumer price index inflation rose twice as fast as economist expectations. Although headline CPI year over year slowed from 3.4% to 3.1%, the Federal Reserve‘s preferred measure of core CPI, which excludes the volatile categories of food and energy, stagnated at 3.9% annually.
That’s nearly twice as high as the central bank’s maximum inflation target of 2%. Core CPI for January on an annualized basis was 4.8%, signaling a slight surge, not a slowdown, in price hikes across the economy.
Whatever delusions investors had of Fed Chairman Jerome Powell saving President Joe Biden‘s reelection odds by juicing the economy throughout 2024 are dying by the day. Despite the central bank’s repeated forecast that it would only cut the federal funds rate three times throughout the year, Treasurys futures priced in about twice as many cuts beginning as early as March by the end of last year. After two subsequent and substandard CPI reports on top of GDP and jobs numbers that both remain too hot to handle, investors have downgraded their projection to just four interest rate cuts.
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In the end, the Fed’s steady hand is as good news for Biden as it is for the rest of the economy. Because the president has pursued an explicitly inflationary fiscal policy, the Fed has been on its own conducting monetary tightening. On top of the fastest rate hike cycle in 40 years, the central bank destroyed an unprecedented 5% of the money supply.
Even so, inflation remains about twice what the Fed and voters more broadly have internalized as tolerable. Mind you, the inflationary byproducts of Bidenomics, which have cost the average worker about an entire paycheck each year, are precisely why Biden is the most unpopular president in modern history.
