Inflation and Fed Analysis (with Carol Massar, Tim Stenovec)

Asks Michael McKee if the president's characterization of the inflation print as 'great' is accurate.

Tim Stenovec

Michael McKee

Inflation is running ahead of incomes. Average hourly earnings were up 3.4%, but inflation was 4.2%, meaning real earnings are down 0.7%. This will be felt at home and the gas pump.

Gasoline prices were up 3.9% in May.

Asks how much of inflation is due to higher energy prices and if the president is right that it will go away when the war ends.

Carol Massar

Michael McKee

If the war ends, prices will come back down, but it will take time. The general feeling is about a month to get enough oil in the system for prices to sustainably come down. Some feel we won't get back to pre-war gas prices until sometime next year, if at all.

The timeline for the war ending has been repeatedly pushed back ('Groundhog Day').

Asks what position the inflation data puts new Fed Chair Kevin Warsh in for communicating with markets and the president.

Tim Stenovec

Michael McKee

The inflation numbers are a gift to Warsh because there is no way to cut rates with inflation at these levels. It will be very difficult for anyone to make a case for cutting this year. The good news is tariff inflation is falling out of the numbers, but new tariffs in July could create problems again.

Core goods prices were down 0.1%. However, an unusual drop in food prices in May may be reversed due to screwworm, leading to food inflation again.

Asks if the strong labor market is a saving grace for the Fed, allowing them to focus on inflation.

Carol Massar

Michael McKee

The worst situation would be inflation rising and the labor market collapsing. The current situation is good news for the Fed. The economic backdrop is pretty good; without the war and tariffs, the Fed could still be looking to cut rates.

People are now questioning if the December cut was a mistake given the current situation.

SignalTube