U.S. inflation for the month of April, measured by CPI, stands at 3.4%. In order for the Fed to consider rate cuts, CPI needs to find a path towards 2%, which is what the Fed considers (arbitrarily) price stability. The chart below provides 4 mathematical paths for CPI based on MoM increments. If we continue the path we’ve had over the last 3 months, with monthly increases of 0.4%, inflation will be at 4.6% in November. Absent major deflationary forces, in order for inflation to reach the 2% target, we will need monthly increases in prices of 0.1% or less, consistently. Since this is difficult to occur, the Fed is looking at core PCE, and other measures that provide a more comfortable reading. As time passes, and we get closer to Election Day, the probability of getting any rate cuts this year is approaching zero.
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