Core PCE came in a only .11% vs. expectations at .2% and Y/Y was 2.8% vs. expectations of 2.9%. We continue to believe that both investors and the Fed are way too pessimistic about inflation as we are forecasting that core PCE will roll down to below 2.4% by the end of the first quarter of 25 and end the year at 2.1% which is near the Fed’s arbitrary target of 2%. It is important to note that real time inflation as measured by PCE-R is already below the Fed’s target as the shelter component is of PCE is 18 months delayed vs. real time rent measures.
Market participants are completely ignoring the deflationary impacts of a soaring dollar. The 8% increase in the dollar over the last 3 months is highly deflationary and is likely to more than offset any potential one-time price increase from tariffs. Inflation is caused by excessive monetary growth and energy shocks, but the monetary base is down by 4.5% Y/Y and energy prices are also down over 5% Y/Y.
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