NEW Inflation Report - What this Means [Fed].

hey everyone me Kevin here understanding

today's report is a little bit of a

doozy at first glance it seems like we

get bang on expectations if not a better

report but there is a counterveiling

argument that's being made by some on

Wall Street including some whom a lot of

you like getting updates from so we're

going to talk about that person's

opinion along with the data right now

then we'll talk about what the

implications are for the Federal Reserve

and of course we have to remember what

the federal reserve's goals are along

with what they've told us they would do

so we have to keep that in mind to take

an objective look at exactly what's

going on so first when we got pce

inflation numbers or as we were

expecting them yesterday we remember

that the February data is really just

based off of the CPI February data and

it's not really new information that's

why most of the time we don't really pay

that much attention to PC but it is

important because it does factor into

being a the fed's prefer inflation gauge

and it's a tool for a lot of fed

charting tools like the multivariant

core inflation tool from the New York

fed which I actually think is pretty

dang good so even though it inherits a

lot of its data from CPI making CPI the

most important for most people pce is

really that report the FED likes because

of how it manipulates all their little

fancy charts and so what we ended up

getting is we had an expectation that we

were going to get a headline

month-over-month increase of 0.4 we got3

so we actually got better news on the

headline month-over-month figure that's

good but that headline number is

affected by some of the volatile

measures in food and energies like gas

and oil the year-over-year figure came

on bang on expectations 2 and a half%

the core which strips out that more

volatile food and energy component came

bang on expectations three and the core

deflator year-over-year came bang on

expectations

point8 but we had some downsides here

that I didn't really love at first I saw

this I go okay cool slightly lower and

then match match match match match that

seems relatively good but there was a

devil in the details there was actually

a revision of the prior pce number for

January the prior pce number for January

was reported to be 0.4 that was revised

up to 0.5 and the prior year year number

was 2.8 which was revised up to

2.9 now those revisions along with

today's data are thrown into the

beautiful Wall Street Journal charts as

put together

by Nick T Nick T has some thoughts on

well some of the data we got this

morning let's take a look at some of his

posts and try to then reconcile all of

this with what this means for the fed

and stocks and markets in general

so right here you have Nick T giving us

an update on what some of the numbers

are he indicates that the 12-month pce

rate in February was the lowest in 3

years which is fantastic 2.8 the lowest

in 3 years

wonderful however the six Monon rate

came in at

2.9% in February that was as low as 1.9%

in December and 2.6% in January so when

we look over here here at this sort of

beigy looking color we could see we

dropped below fed target only to shoot

right back above it right here at that

2.9% level so the recent 6mon period

along with the recent 3month period is

becoming a little bit more aggressive on

inflation uh when we look here at the

pce index for February we see it up 33%

in February the 12month rate ticked up

to 2.5% from from

2.45 or from 24 from January and the

6month annualized rate was 2 and a half

which is actually down from January so a

tiny little bit of give and take in some

of these numbers here and I think when

we look at the charts it's pretty clear

yes we're going to have volatility

around these numbers but we're probably

settling somewhere with inflation

between 2 and 1/2 to 3 1/2% okay what

does that mean why is that a big deal

well we can jump on over to our pce

report and in the actual PC report we

won't actually get any insights into why

that's a big deal so one said we'll use

it as a little bit of a notepad for us

to draw some ideas on but I want you to

first know what Bloomberg economists

think they think the numbers we got

today actually reiterate getting a cut

in June and getting three for this year

so they think we're going to firm up

price Ing and they think we're going to

firm up and reiterate yes we're getting

three Cuts this year they actually think

that will be bullish for people who want

to buy bonds or maybe even interest rate

sensitive stocks keeping in mind that

this is bitcoin's reaction which well as

usual it's kind of all over the place

and given that it's at 699 I can't

really say that trading in this range is

any kind of meaningful indicator so

instead let's just try to understand for

a moment what is the Federal Reserve

trying to do this is the pce report by

the way you can see the largest

contributors were as usual Financial

Services Insurance Transportation uh led

by air transportation housing and

utilities and motor vehicle parts led by

light new trucks obviously the

cybertruck now let's go in over here and

let's make a few notes the very first

thing that we have to understand is we

have to understand what's the fed's goal

okay this is really important we've

talked about this before we have to

understand this uh and there are a few

goals that the Federal Reserve has so

I'm going to list these out right here

uh so uh okay here we go and uh there we

go okay so a few things we've got number

three we'll go in reverse order we have

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lifee yeah paid Partnerships okay I had

to get those out of the way so what is

the fed's goal well the federal

reserve's goal is very simple let's

erase this and let's make this clear

let's say the neutral rate of interest

is

3% and let's say that inflation is

running at

25% well what should the Federal

Reserves rate be 5 and a half per.

whoops that was funny kind of flipflop

there we go it disappeared on me for a

second about five and I see that the

hackers are coming in that would give us

a rate of about 5 and a half% that's

where we are now well what if the

neutral rate is actually

2.5% well then we should have an

interest rate increase down to 5% that

would be the equivalent of one to two

rates whether you're measuring from the

bottom or the top okay uh rate Cuts

basically this is probably where the

federal reserve's head is and the

Federal Reserve probably probably thinks

that even when we look at the Nick T

charts we're probably bobbing around

that 2 and 1 half level and so we're

probably setting up for at least one to

two cuts assuming the neutral rate of

interest is 2 1 12% and inflation is

settling around

2% that's my take that's my belief now

what does that mean well it reiterates

yes some cuts for this year does this

report iterate that we need four five or

six Cuts Absol absolutely not in fact

when we look at personal spending it

exploded personal spending came in at 08

versus the 0.5 expected retail

inventories coming at 0.5 versus the 04

expected inventories and spending

exploded yet personal income somehow

missed again coming at at. 3 versus 04

probably because people are spending

still more of the savings they have or

they're just taking on more debt which

obviously isn't sustainable in the long

term but for a short-term play is this a

bad Catalyst that all of a sudden we

need to get a bunch lower rate Cuts or

or or a bunch more rate Cuts because the

economy's falling apart no econom is not

falling apart is this a report that says

we are going for no cuts no absolutely

not this is a report that actually

probably reiterates somewhere between

two to some I I would say I would say

probably two cuts because I think

there's an equivalent argument to argue

for one cut this year equivalent

argument to argue for three it probably

reiterates at least two cuts for this

year so yes two cuts are likely to begin

this year whether they begin in June or

not will be predicated by the next

inflation reports so make sure to

subscribe to the channel I'll keep you

updated with everything that's moving on

in terms of what I think the market is

going to do on Monday actually think the

Market's going to like this data on

Monday I don't think this is a seld the

news uh set of information it is April

1st so it's the beginning of the new

quarter but any kind of rebalancing

theoretically should have already been

done so I don't really have a negative

Catalyst for April 1st April 2nd Tesla's

deliveries that might be different

anyway thanks so much for watching we'll

talk to you soon bye why not advertise

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see go congratulations man you have done

so much people love you people look up

to you Kevin PA there financial analyst

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