Transcription
Hey everyone, and thanks for jumping back into the macroverse. Today, we're going to talk about the most recent inflation report. If you guys like the content, make sure you subscribe to the channel, give the video a thumbs up, and check out the sale on Into the Cryptoverse Premium at intothecryptoverse.com. Let's go ahead and jump in.
So, we just got the inflation rate year-over-year, and it came in at around 2.9%. Really, you know, 2.94%. Uh, it came pretty close to rounding to three, which might have had a bigger impact on markets, but still 2.9%, and consensus was also 2.9%. So, while it has moved up, it it didn't really move up in an unexpected way, right? It it moved up, but not really in an unexpected way. Um, this could be residual effects of of the PPI data we got last month. Uh, hopefully, it'll come back down next month. Um, but you can see that it in fact did move up to 2.94%.
If you look at it per category, so this is overall headline inflation. We can see like why it's going up, and then we'll look at it weighted. Food and beverages inflation actually went higher from 2.79 up to 3.12. Uh, and guys, I I will say, right? I know a lot of people don't trust the the inflation data. This is not, I mean, this is more so about looking at things that the Fed will ultimately base future decisions on. Right? Housing inflation actually went up a tiny, tiny bit, but not a whole lot, from 3.94 to 3.98. But remember, housing inflation is a majority. It contributes a majority to the overall headline CPI number. It's like two-thirds or something. Uh, apparel went from deflationary, now back to being inflationary, but not really that much, just 0.25%. Transportation, also something that's commonly more commonly deflationary than other categories, was deflationary a few months ago, uh, but now it's back up to about 1%. Uh, you have medical care, which dropped from the last month, and then recreation and education and communication.
Now, if you look at it, uh, weighted, because again, the the categories are not all treated the same. What you'll notice, and we're going to zoom in over here. Um, what you'll notice, this is the overall headline inflation. You'll see that housing inflation makes up a, you know, a majority of the overall inflation. Okay, so that's having the biggest effect. That did go up a little bit, but not a ton. Food and beverage, that had a decent effect because last month it was, you know, 0.41% of the 2.73, and then this month it's 0.447. Um, so that is, you know, one of the big reasons for the overall increase. Uh, we did obviously see changes in other categories. I mean, like you have, uh, transportation, which was deflationary a few months ago, back now to actually contributing. Um, I think, uh, there are a few others as well, right? But overall, not a whole lot has changed. Inflation ticked up a little bit, uh, but it's not that surprising. That was the overall consensus view.
Core inflation, right? Core inflation, um, has has remained steady, I believe. Or this is international core inflation, USA. Um, you know, it was at 3% about 3.1% last month. It's at 3.1% this month. I mean, last month it was 3.0505. So, it rounded to 31. And then this month is 3.11. So, it still rounds, uh, to 31. But, you know, a slight move up here. And I have to imagine that it's these increases we've seen with inflation recently. I have to imagine that that is the the reasoning why the Fed is only likely going to do a 25 basis point rate cut, right? Because without that inflation, you know, without the PPI data from last month, which was actually mostly taken back down this month, um, if you just look at at the labor market, um, you you really you really could start to justify a heavier cut than than 25 basis points. And one of the reasons is is not, it's not, I mean, looking at inflation and and, you know, thinking that it's probably going to to drop back down eventually, but it's more so like looking in at looking at at some of the weakening we've seen. I mean, even today with initial claims, it's still not that concerning because it's still below 300K. But we did see initial claims actually spike up to 263,000. Um, I don't, you know, this is this is the highest initial claims I believe have been since like 2021. So, I with, and the reason I I say it is because initial claims are trending up. Uh, but you also have, you know, the unemployment rate, uh, starting to sort of break out above that 4, 4.2% level. It's now 4.3%. We know that hires are down, right? Hires are down. They're pretty low now. Um, and we also know that job openings are are are pretty low. And and additionally, the number of available jobs per the the number of jobs per available worker is now less than one, which is a metric that that Powell has frequently cited.
And then the last thing I'll say about it is that the 2-year, I I generally think that the 2-year yield tells the Fed what they need to do. The Fed does not tell the 2-year yield, right? It's this it's the 2-year yield telling the Fed. And if you go look at the, uh, at the 2-year yield, it's currently at at 3.5%. And what you'll notice is if you overlay interest rates here, if you overlay interest rates, um, you can see historically, you know, the 2-year yield will will will drop. Like it'll it'll drop, and then the Fed will then start to cut rates. When the 2-year yield rises, then the Fed starts to raise rates. So, right now, the 2-year yield is at 4 point, or sorry, it's at 3.5%. But the Fed funds rate is at 4.5%. Right? So, there's a 100 basis point delta right there. Um, you could argue that the current that the current bull market that we've been in, you know, for the last few years would probably take a break, uh, if the 2-year yield durably breaks below 3.5%. So, what I'm hoping for is, I I'm hoping that the 2-year yield can bounce here, um, kind of like it did last year when the Fed cut rates at essentially the same level. If the 2-year yield can get one more bounce before the end of the year, then it could, you know, it could set things up for that final move in the Q4. But watch this, because if this starts to break down, you know, it might change the outlook. So, we'll see what happens when the Fed cuts rates. What you want to see is you want to see the 2-year yield break back up and maybe tag that bull market one more time before then likely going below that level, uh, in in 2026. Remember, the argument here is that the neutral rate, and again, not everyone agrees with this, but the argument is that the neutral rate could be approximated by the 2-year yield, and the neutral rate, if that's true, the neutral rate is 3.5%, and the Fed funds rate is still 4.5%. But again, you could argue that with the weakening we've seen in initial claims and with the weakening we've seen in the unemployment rate heading higher, right, finally breaking above 4.2, it would stand to reason that the Fed could could justify a 50 basis point rate cut. I I have to imagine the only reason they're not is because they're worried about about this recent trend in inflation.
Here we actually have inflation rate internationally. So, here you can see it for the United States, but if you're curious, we also have it for New Zealand. You know, it's been moving up a little bit recently. Not a ton. Um, Germany. I'm just going to go through them. Uh, Australia. And here's Japan. Japan, we've actually seen, this is the reason why the Bank of Japan keeps raising rates, and while they'll probably raise rates again, is because that one's more so been trending higher than a lot of other countries. But remember when a lot of countries were cutting rates back in, um, or sorry, when a lot of countries were raising rates back in 2022 and 2023, Japan wasn't, right? So now they're doing it now. Uh, France. France's inflation is back getting pretty low, actually, 0.9%. Um, Singapore, pretty low. South Korea, South Africa, Mexico. Zoom in here to Mexico, 3.57. Uh, Brazil. Brazil's at 5%. China, negative 0.4. Uh, the United Arab Emirates moved up a little. The Euro area is is currently at around 2.1. India, 1.55. Let me zoom back out. Um, and then of course, Canada, just below two. And the UK. The UK. You know, inflation in the UK has actually been trending higher. Uh, found a low of 1.7 back in September 2024, but it's been moving up more or less ever since then. It's back up to 3.8%. So, I don't really know, uh, what they're doing over there, but they need to they need to figure it out because inflation's going the wrong direction over there.
So, those are my thoughts. Um, I I think the Fed will probably cut 25 based on this, but I mean, honestly, if you didn't if you didn't show me this, I wouldn't be that surprised, uh, for it to be 50. I I think they could get away with 50. I think they could justify as long as they do they would do like 50 and then maybe 25, right? So, like last year they had cuts at every meeting, September, October, December. Uh, it looks like this year the the market's pricing in cuts at every meeting, um, but then also one in January. What I'm suggesting is why not just do 50, 25, 25, and then by the end of the year, assuming the 2-year yield doesn't break down, then at least the Fed funds rate is is back in line with the neutral rate. But those are just my thoughts. Obviously, they're they're they're leaning towards just doing a 25 basis point rate cut.
Anyways, if you guys like the content, make sure you subscribe, give the video a thumbs up, and again, check out the sale on Into the Cryptoverse Premium at intothecryptoverse.com. I'll see you guys next time. Bye.