US inflation is coming down
Last week the highlight of the macro releases is undoubtedly the US inflation data. The Fed has been raising rates for over a year and we are starting to see signs of disinflation, but it is too soon. for the Fed to declare victory.
CPI inflation fell below expectations for February; Throughout the year, inflation slowed from 6% to 5%, the largest single drop in inflation this cycle. At the same time, energy is in deflation for the first time since 2021 (-0.5%). Does it echo the cuts from the OPEC+ announcement that economic demand is deteriorating?
On the other hand, we have seen a 32% drop in the price of oil (YOY), and CPI inflation is only 5%. This is the first time that oil has fallen more than 15% while the CPI has remained above 5%.
Furthermore, core inflation remains sticky, with services inflation still above 7%, which is still too high for the feds’ liking. Core CPI increased from +0.1% to 5.6% y/y. The Fed must continue on an aggressive path to avoid the mistakes of the 1970s and 1980s. However, credit uncertainty will play a very important factor in the short and medium term.
federal minutes
The latest FOMC minutes came out after Wednesday’s CPI print, revealing a couple of factors. One is that the staff projected a “mild recession” later this year. While “all” officials backed a 25bp rate hike last month. The FOMC maintains both inflation reduction and a close watch on monetary policy.
China and Russia also see inflation fall
Russia’s inflation slowed to 3.5% from double digits of about 11% in February, hitting the lowest level in almost three years.
While China’s inflation fell earlier in the week, the PPI deflated while the CPI declined to 0.7%, which happened at a similar time to Bitcoin, outperforming $30,000 during Asian business hours.
The BOE tries to reign in hot inflation
Andrew Bailey spoke at the IMF meeting about his perspective on prioritizing inflation. The BOE has risen eleven times, taking the bank rate to 4.25%, and is expected to rise another 25 bp on May 11. The UK currently has the highest inflation in the G7, but in a turn of events SIlvana Tenreryo was replaced.
She was the most moderate MPC member and has voted against every increase since September. Megan Greene is her replacement, who later said: “The Bank of England will end up having to raise more to get inflation back in line with its target.”
Sinking DXY, bank fears subsided
The DXY Index sank to its lowest level in more than a year, below 101, almost exactly where it was a year ago. Usually, in times of crisis, investors flock to the dollar because it is the world’s reserve currency. As you can see, during recessionary times, the DXY index rises when investors have to sell and cover their dollar obligations.
The DXY index has dropped from 114 to 100; In recent weeks, as the banking crisis has abated, we are nearing the end of the rate hike schedule and the potential for more echoes of de-dollarization continues. But this is certainly not the end of the dollar.
As credit and M2 contract further, we may see defaults, outright deflation, and unemployment. We then expect to see the DXY run again and the assets get crushed.
The banking crisis has abated, while the Fed’s emergency lending programs fell to $139.5 billion from $148.7 billion last week. Broken down by; Discount Window: $67.6bn vs. $69.7 the week before, while BTFP: $71.8bn vs. $79bn. As a result, the Fed’s balance sheet has narrowed slightly this week.
The charge MacroSlate Weekly: US Inflation Down, But Fed Forecasts ‘Mild Recession’ first appeared in CryptoSlate.
