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Director - Global Macro Strategy
Talking Points:
With the government shutdown, investors may not receive the September CPI report next week, which is likely good news for markets, given the risk of another inflation surprise.
I will use this respite to examine the flaws in the Consumer Price Index, propose “hardcore inflation” as an alternative, and explain why monetary policy is inherently political.
The first part will discuss hedonic adjustments, which lower core goods inflation by about 1% a year.
The second part will introduce hardcore inflation, which corrects the following four flaws in the CPI:
This “hardcore” CPI has increased by 5.9% annually since the COVID pandemic, compared to just 3.9% for the consumer price index. It suggests that real incomes have been flat for five years, and that inflation has re-accelerated to about 4%, which matches my favourite haircut indicator.
The third part will explain my belief that the calculation of inflation, the sharing of seigniorage, and monetary policy are core attributes of sovereignty. Independent experts cannot determine the pace of wage growth, the optimal level of deficits, or how to share productivity gains. Constant shocks have broken the Phillips curve, and tracking prices has become much harder in an economy that is dominated by intangible assets, complex services, and AI-driven prices.
The current assault on central banks’ independence is partly due to their recent mistakes and partly due to the current political preference for inflation. Caesar is reclaiming his due...
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Fiscal risk in the long end and the belly keeps the U.S. Treasury yield curve exposed to steepening, even after the midterms. Safe-haven demand supports the front end while the refunding announcement puts the 20-year and 30-year sector in focus.
Fiscal risk in the long end and the belly keeps the U.S. Treasury yield curve exposed to steepening, even after the midterms. Safe-haven demand supports the front end while the refunding announcement puts the 20-year and 30-year sector in focus.
U.S. 10-year Treasury yields are holding at a key support level that sits between a broad risk-on reversal and a deeper risk-off move. Inflation concerns and Federal Reserve rate hike expectations keep yields supported, and that support keeps a lid on risk appetite across markets.
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