Market volatility has been blamed on various Fedspeaks — most recently Lael Brainard, he says increase by half Inflation will need to be contained.

make me wonder.

I think most explanations of market behavior are a mix of narrative fallacy and hindsight bias, with a bit of unexpected accuracy.The current explanation seems to fit this

To assess the likelihood that these are more than just Fed chatter, and the plausibility of an ex post facto interpretation of volatility, consider the various components that make up CPI inflation.

vitality: Divides the rise in energy prices into two phases: 1) the impact of post-pandemic return to office and reopening, and more time for driving and air travel; 2) the spike caused by the recent Russian invasion of Ukraine.

New and Used Cars: Bringing the entire global semiconductor manufacturing capacity back into service is still an extremely slow process. This is a key factor in the rise in car prices. (U.S. law does not allow cars to be sold without the chips that control the safety systems – ABS, airbags, etc.). A shortage of new car supply (with the same demand) leads to higher prices for new cars. Used car prices are tied to new car prices, but perhaps less obvious is that all new cars become part of the future used car supply. Therefore, the shortage of used (cheap) vehicles is likely to persist even after the supply of new vehicles increases. notes: Ukraine supplies about half of the world’s neon lights, a key component in semiconductor manufacturing.

food (home): Russia and Ukraine supply about 28% of the world’s wheat products.One bird flu outbreak Caused very timely mass slaughter and chicken shortage; beef shortage blamed on everything above Raw material price, Industry driven regulation, and Increase in demand. Even herbicides have gone up in price.

other: An all-encompassing category that includes a variety of goods and services such as tobacco, haircuts, and funeral expenses.we can blame one Covid-created Global shortage of coffin Push this part higher?

Dinning room: Food prices have risen, to be sure, but rising wages (and health care costs) are the main drivers of restaurant price increases. That’s before we get to the point where the landlord thinks they have the ability to raise the rent on a new lease or a lease renewal.

shelter: The data here is easily misunderstood because 1) Owner’s Equivalent Rent, which tends to underestimate inflation; 2) Recovery after a year-on-year crash, tends to overstate rent increases. A 20% Case Shiller indicates that prices have risen strongly.

Ask yourself a simple question: Which of the above price increases is highly responsive to Fed rate hikes?

no.

Since we started seeing 7% and 8% CPI numbers, the Fed has had multiple chances to hike rates significantly — any of the four meetings since November, December, January, and March, or two. any time between meetings.

They chose not to, and raised only 25 basis points in March, which shows they fully understand this.

they want normalize interest rates will not cause a recession.

I doubt that Jerome Powell believes (hopes?) that we have peaked in the CPI and may see an organic decline in the near future. It explains most of what we’ve seen and heard.

Changes in interest rates occur with a huge lag time of 6 to 12 months. A soft landing depends on measuring what the changes you made a few months ago will have in the coming months, while ignoring today’s headlines in the face of enormous political pressure.

The Fed chair must have something to do with Hippocrates, who described the doctor’s job as “first, do no harm.”

If only experts had similar obligations…

~~~

Fed meeting minutes Posted today in 2:00 PM.

Before:
Normalization and Inflation (March 14, 2022)

Comparing Stimulus: Monetary and Fiscal (GFC and C19) (March 11, 2022)

Temporarily taking longer than expected (February 10, 2022)

Structural or temporary? (November 23, 2021)

Deflation, interrupted by spasms of inflation (June 11, 2021)