Inflation Surprise Barely Changed Expected Path of Fed Funds

Inflation of the core consumer price index on a monthly basis unexpectedly increased (0.5pp vs. Bloomberg consensus by 0.4pp), while the monthly forecast was in line with the consensus. The path of the Fed funds, as indicated by the futures, is barely budgeted.

Picture 1: Fed effective funds (black), implied CME futures for March 13 12:20 CT (red square), March 10 (pink square), March 14 (inverted sky blue triangle) 1:20 CT. Source: CME Fedwatchas of March 13, March 14.

It’s pretty hard to see the increase, but it’s there; at the May 3 meeting, the implied rate rose from 4.936% to 4.940%.

Here is a picture of inflation rates by month on an annualized basis: total, base, base ex-shelter, trimmed mean, and median.

Figure 2: Monthly annual inflation of core CPI (black), core (brown), core ex-haven (sky blue), 16% trimmed CPI inflation (green), median CPI (red), all in decimal form (i.e. 0, 05 means 5%). Source: BLS, BEA, Cleveland Fed via FRED, Pavel Skshipchinskiand the author’s calculations.