Remarks from Michael Feroli, Chief U.S. Economist at J.P. Morgan on his US inflation outlook:
- Inflation has cooled significantly relative to earlier boomy highs from the past few years, but still remains above target. Weakening in core goods inflation has been an important moderating force for overall inflation, but core services prices excluding housing have cooled much less noticeably lately
- Absent a recession next year, we don’t see inflation getting all the way back down to 2%.
- Core goods prices in the U.S. have been roughly flat throughout 2023, reflecting a near-return to pre-pandemic trends. However, inflation in the services sector has been more resilient.
- In 2024, while the unwinding of supply chain shocks could deliver further disinflation, we think the ‘final mile’ of getting inflation down will require a softer labor market
- We are already seeing wage inflation slow and we think the labor market should soften over time as the economy is impacted by higher interest rates. This should allow core services prices to moderate, working to bring broader inflation aggregates closer to target.”
- After a strong run throughout much of 2021 and 2022, food price inflation settled down to a more moderate trend of 0.2% monthly gains in 2023, and we look for similarly unexciting increases moving forward
- Swings in energy could be important, but we believe that any upcoming big changes would be more likely related to factors such as geopolitical events
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Various Fed officials have been dropping hints, loudly, that rates will be cut when the Fed think they'll get to 2%, they won't wait until they hit 2%. but what if they come around to this view from Feroli that they aren't going to get to 2%? Given the market pricing (clamouring) for rate cuts, it could get very ugly, very fast.
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Next week we get the latest inflation readings from the US, for January:
- due at 1330 GMT (0830 US Eastern time) on Tuesday February 13
