Sticky Inflation Leveling Off Above Fed's Target

Headline inflation at 2.7% is at expectation, indicating that we’ve stalled in the move toward 2% target. Restaurant CPI ticked down slightly, while Grocery prices had a major uptick coming in at the highest level since Nov 2023.

We are a long way from the highs of 9%, so CPI below 3% is good news in comparison. However, it is clarifying that the ‘soft landing’ that was foretold earlier in the year  (in which inflation was at target & the economy was growing) has not come to fruition (yet). This means that the hard question remains: is a 2% inflation target more important than robust economic growth?  

As I wrote in this newsletter back in July, the end of 80 years of globalization that we are experiencing now could make 2% inflation an unrealistic goal for the foreseeable future. The upside of less dependence on foreign supply chains and more domestic manufacturing may be well worth the short-term costs, but are American people ready to start paying for the costs? At $34T the national debt has grown 900% since 1984, doubling the growth rate of GDP. On top of that the Fed’s balance sheet remains at a hefty $7T. The level of austerity it would take to unwind from that cannot happen without some pain in the economy, but avoidance risks instability.

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