A Bad Month for Gasoline Won’t Fuel the Fed

One item out of hundreds – gasoline – explains the whole August bump in headline CPI. Despite it, from peak in June 2022, it is now 82% of the way back to the Fed’s target. Our preferred measure, core excluding OER, is virtually all the way back to target already – mission accomplished, and now comes deflation thanks to the lagged effects of all the Fed has done. At Jackson Hole Powell said headline can be “misleading,” and that he will focus on core. Last week Waller said there is nothing driving “imminent” action – even though, when he said it, he could see the August spike in gasoline prices. There will be no hike at next week’s FOMC, and the year-end “dot plot” will be lowered to 5-3/8%, signaling this hiking cycle is over. The 2024 “dot plot” will be left unchanged at 4-5/8% to signal continued vigilance. But all that will be thrown out when outright deflation emerges early next year.