Fed's Inflation Fight May Be Far From Over

Market Insights for April 27, 2023

Money supply has fallen at a 10% annualized rate over the past three months, but that didn’t prevent core inflation from re-accelerating in Q1. Despite aggressive tightening by the Fed over the past year, its preferred inflation measure (PCE ex Food & Energy Price Index) not only remains elevated, it has actually turned higher.

Key Takeaway: The Fed’s goal is to bring core inflation back toward its 2% target. Right now it is still near 5% and has turned higher. A lack of financial stress leaves the Fed with room to keep rates higher for longer than the market is currently expecting. The market has priced in a pivot, the best it can hope for at this point appears to be a pause. History doesn’t reward those who fight the Fed.