Goldman Cuts Rate Hike Odds After 5th Consecutive Inflation Miss

Tyler Durden's picture

The Fed is becoming increasingly trapped: despite the FOMC's "best intentions" to telegraph that the economy is improving with the unemployment rate at a paltry 4.3% - because otherwise it clearly wouldn't be hiking, right - CPI has now missed consensus estimates for 5 consecutive months, and what worse, the biggest historical driver of inflation in recent years, shelter and rent inflation, appears to have peaked and is now declining. Worse, wage inflation is nowhere to be found, much as one would expect from a bartender and waiter-led "recovery."

Of course, never one to miss a scapegoat, earlier today Dallas Fed president Robert Kaplan blamed the lack of inflation on technology, saying at an event in Texas that technological disruption is "a new and powerful structural factor that is influencing inflation" and finally noticing that "technology is increasingly replacing people in the jobs market" while "allowing consumers to change shopping habits, and is limiting the pricing power of businesses. That - in addition to global factors - has an impact on inflation."

Predictably there was no discussion of how it is the Fed's trillions in excess liquidity that has allowed VCs to invest tens if not hundreds of billions in money-losing ventures, which have made this tech-driven deflation possible.

As an aside, while the BLS-reproted CPI continues to deteriorate, the Atlanta Fed reported that its own sticky-price consumer price index —a weighted basket of items that change price relatively slowly—rose 2.6% annualized in July, following a 2.2% increase in June. The 12-month percent change in the index remained at 2.1%. Then again, the Fed is known to avoid any indicator that defies the prevailing groupthink, which now seems to be that inflation is lower than the Fed would like it to be.

So while the Fed ponders how to escape this trap it has created for itself, in which zombie companies refuse to die and where cash burning tech companies push inflation ever lower, at least until rates rise enough to crush the VC party once and for all, here is Goldman which moments ago once again cut its forecast for a rate hike possibility in 2017.

The consumer price index rose 0.11% in July in both the headline and the core, missing expectations for the fifth consecutive month. The primary sources of weakness were lodging away from home and new vehicle prices, and we suspect the former will rebound in coming months. Nonetheless, we now estimate that the core PCE price index rose just 0.08% month-over-month in July, or 1.40% from a year earlier, down from +1.5% in June. Accordingly, we now place the subjective odds of a third hike this year at 55% (vs. 60% previously).

The details:

  1. The consumer price index (CPI) rose 0.11% month-over-month in both the headline and the core (excluding food and energy), below expectations for the fifth consecutive month. Food prices rebounded (+0.2%) but energy prices edged down (-0.1%), providing offsetting impacts for the headline CPI, where the year-over-year rate moved up a tenth to +1.7% (vs. consensus of +1.8%). Relative to our expectations, the sources of weakness in core inflation this month were lodging away from home (-4.2% mom) and new car (-0.5%) prices, which together reduced month-over-month core inflation by -0.07pp. The lodging decline was the largest on record (back to the 1960s) and appears at odds with continued firmness in the PPI and industry measures. Despite the overall weakness, month-over-month inflation was generally firm in the large and persistent housing and medical care categories, with increases in medical services (+0.3%), medical commodities (+1.0%), and owners’ equivalent rent (+0.27% vs. +0.28% in June) prices, despite the sequential deceleration in rent of primary residence (+0.24% from +0.35% in June).
  2. Based on details in the PPI and CPI reports, we estimate that the core PCE price index rose just 0.08% month-over-month in July, or 1.398% from a year earlier (vs. +1.505% in June). Additionally, we expect that the headline PCE price index rose 0.08% in July, or +1.392% from a year earlier.
  3. Despite encouraging component detail, the overall CPI report was clearly disappointing. We lowered our Fed probabilities accordingly, with subjective odds for a third hike this year at 55% (vs. 60% previously). In terms of timing, we place the odds of the next hike at less than 5% for September (vs. 5% previously), less than 5% for November (vs. 5% previously), and 55% cumulatively by December (vs. 60% previously).

At the current rate of economic disappointments, that 55% will hit zero in about 4-6 weeks.

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hedgeless_horseman's picture


Who are you gonna believe, The Recovery Narrative, or your lying UST coupon?

Bay of Pigs's picture

I seriously doubt inflation has ever "missed" in the last 50 years or more. It is theft via deception.

Death to the Moneychangers.

eclectic syncretist's picture

The amount of "money" in circulation can increase infinitely (just imagine an infinity coin), but the amount of resources the earth has to offer are limited. Every time the Central bankster moneychangers print or ease they create inflation, although they will tell you any of a number of different lies to try and convince you it isn't true. 

NickyGall's picture

 Here is an interesting look at what Janet Yellen had to say about one of the significant dangers facing the U.S. economy:


This is the one overriding factor that will impact the ability of the U.S. economy to grow in the future.

Putrid_Scum's picture

She's lying, the infinite is always sustainable.

And all the old men are worried. 

Putrid_Scum's picture

I see our friends at Goldman Sachs aren't measuring Bitcoin inflation ;)

I wonder why ;)



LawsofPhysics's picture

indeed, they also don't appear to be counting equities in their inflation model either...   ...I wonder why?

Putrid_Scum's picture

To be honest, I no longer wonder. The entire System has been modeled, included the FED shell game.

It's quite a clever shell game ....

And all the old men are worried.

'I don't understand how those at the top can continue to game the system knowing its false and corrupting. I exploited globalism, but I didn't sign up for facilitating future mass murder.'

eclectic syncretist's picture

I see they don't appear to be accounting for the soaring costs of medical care or education either. If they think they don't matter then why do our so called leaders spend so much of our time and money arguing about them?

EHM's picture

Bitcoin is deflationary. It is gaining purchasing power not losing it.

Putrid_Scum's picture

Yawn... and people wonder why I've called for the death of 1 billion people.

LawsofPhysics's picture


Remind us how many people actually hold bitcoin again?  How many producers of essential commodities (like OIL) accept it again?

There are almost 8 BILLION people now competing for the finite resources required to maintain a decent standard of living and you think everyone will be just fine when the government overlords demand that you pay your taxes in a crpto, or when producers demand shitcoins, but the majority of people don't have any?


You are clearly one stupid fuck.

aliens is here's picture

Dear Yellen:

Go fk yourself you ugly old hag.


Pissed off American.

LawsofPhysics's picture

LOL!!!  Right, because the real cost of living at a decent standard just keeps going DOWN?!?!?

I think someone is lying....


No matter, such "let the majority eat cake" monetary experiments have in fact been tried before.

"Full Faith and Credit"

shizzledizzle's picture

I'd like to go grocery shopping with Janet Yellen in tow. (You see this bag of sugar bitch! It used to weigh 5 lbs and cost half the price you lying fucking cunt!)

aliens is here's picture

I doubt she goes to shopping on her own. He has her minions do it and don't even look at the receipt. What a bitch.

ReturnOfDaMac's picture

I own Goldman, they would never lie to you.  /s

Storm-Clouds's picture

This is not your Daddy's fed. We will raise another .25! No soup for you!

onthedeschutes's picture

Remember the good ole days when Goldman had a good reputation?  Me neither.

Sky flyer's picture

Is there not a got dam thing that can cause a 1-2% drop in the Dow on a Friday? It's been so long I don't remember what it was like anymore.

TheSilentMajority's picture

Those official CPI numbers are fake/fraudulent.

The real CPI has averaged between 7%-12% annulaized for over 20+ years.

When will the media finally expose the truth on the real CPI???

ET's picture

The CPI numbers are correct.

What is incorrect is to believe that CPI measures the expansion of the money supply and the value of the dollar.

ET's picture

It is best to ignore anything from Goldman.

Read a history book on monetary policy. All the machine learning bots are already studying history of finance going back millennia.

Make your bets accordingly.

In.Sip.ient's picture

And the price of BtC is where again???


If an American doesn't understand the  word "competition",

who the hell does???