Wall Street is counting on the Federal Reserve to stay on the sidelines until September and then resume cutting interest rates. Some big money advisors are even counting on the Fed to cut interest rates again before September. Bloomberg ran an interview this morning with a Wall Street strategist looking for a full percentage point cut in benchmark rates in 2020.
Data have a way of raining on parades like this, though, and this morning’s report from the Bureau of Labor Statistics on the Consumer Price Index (CPI) measure of  inflation shows clouds on the horizon if not yet any actual precipitation.
The headline CPI rose 0.3% in November. That was slower than the 0.4% increase in October. But it still put the increase in the index over the last 12 months as 2.1%. The 12-month rate of increase in October was 1.8%.
The core CPI, which excludes food and energy prices, climbed a smaller 0.2% in November. That was equal to the 0.2% increase in October. That put the 12-month increase for the period ending in November for the core CPI at 2.3%.
Now granted that the Federal Reserve doesn’t use the CPI measure of inflation and instead prefers the Personal Consumption Expenditures index, which tends to run at a rate of increase below the CPI.
And that means that the Federal Reserve is looking at inflation of less than 2% and thus below its target of 2% inflation.
But the trend in the 12-month CPI does point upwards and that does argue that the markets can’t afford to overlook the possibility that inflation will disrupt Wall Street dreams of ever-lower interest rates from the Fed in 2020.
Something to keep an eyeball on as we wait for the Fed to speak on interest rates today.
