Why the Fed won't cut rates

The mission is not accomplished

The latest CPI inflation print was good. It was good whether you look at the year-on-year or the month-on-month rates. 

That has led to a number of people calling it mission accomplished. I've even read suggestions that the Federal Reserve should start cutting rates ASAP to avoid over tightening.

Now this is total nonsense. 

And here is why: inflation is not back to its normal pre-QE level. Far from that.

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Why the Fed won't cut rates

The takeaway

If you are expecting immediate rate cuts because inflation is "on track" to reach its 2% level then I urge you to think again.

One data point does not make a trend. It does not make sense to look at the October print in isolation.

When instead we zoom out the picture is pretty clear. The dynamic of the inflation rate over the last six months is not in its pre-QE level. In its current regime inflation will stay elevated or trend higher.

Which means the Federal Reserve won't start cutting rates unless they have to.

Year-on-year inflation isn't the full story