Weekly Signal and Noise Filter
Higher For Longer is Dead
It is taken as a truism that Fed Governor Waller’s and Chairman Powell’s commentary last week shifted the information surface of what we know regarding monetary policy.
An alternative view, proposed here, is that these policy makers didn’t deliver any new information.
They merely directed our eyes and re-contextualized information delivered over the past few weeks regarding inflation (CPI and PCE) and growth (Atlanta Fed GDPNow nowcast).
New marginal information was actually received from two other sources.
The first new information node came from the PCE report. Namely, core PCE is on track to print 3.5% YoY, below the 3.7% listed in the Fed’s September SEP.
It was this spread that accelerated the timeline for potential cuts.
Waller and Powell were the messengers of the asymmetry between forecast and soon-to-be realized inflation expectations which crystalized the dislocation in the U.S. bond market.
The second new information node came from the other side of the pond, with several Eurozone countries (notably Germany, France, and Spain) delivering inflations prints that were below expectations.
The relevance here is that the narrative that linked the global inflation surge to global supply chain dislocations gained more traction, shifting from cautious suspicion to common knowledge.
When an information surface is disrupted, markets reprice swiftly, and sometimes violently.