Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

The Atlanta Fed recently released its sticky inflation data for September, which has flown somewhat under the mainstream radar. This data represents a weighted basket of items that experience slower price changes. In September, it saw an annualized increase of 5.5%, up from August's 4.7%. Year-over-year, the figure rose by 5.1%. When food and energy are excluded, the core sticky-price index also marked a 5.5% increase in September, with a year-over-year change of 5.0%.

Misaligned Fed Using Trailing Inflation Data - 10.13

Sticky inflation items consist of elements like alcoholic beverages, public transport, medical services, and primary residence rents. On the other hand, flexible price items span categories such as fruits, vegetables, used cars, apparel, and lodging away from home. We've provided a detailed methodology for understanding sticky inflation.

Misaligned Fed Using Trailing Inflation Data - 10.13 2

The included image showcases the Atlanta Fed's use of sticky inflation as a predictive instrument. They favor trailing inflation data for more accurate future inflation projections (very disconcerting). However, the Fed's ongoing reliance on the Phillips curve is worrying. Acting based on the Phillips curve, they may inadvertently exacerbate a manageable recession. A potential interpretation suggests that to align with the curve's predictions, the Fed would need to increase rates to raise unemployment from its current 3.8% to an approximately 5%. Though a broad strokes estimate, this could translate to nearly 1.9 million additional job losses. Such a scenario could drastically alter the financial flow landscape. 

Learn more about the Market Situation Report written by Tier 1 Alpha.

Misaligned Fed Using Trailing Inflation Data - HISbanner

Misaligned Fed Using Trailing Inflation Data - marketsituation


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