Hilsenrath: Reading Between The Lines On Inflation And The Fed

When I started Top Gun – before Nick Timiraos assumed the post of Fed Whisperer – that role was filled by Jon Hilsenrath. That’s why Hilsenrath’s piece in this morning’s WSJ is worth scrutinizing for clues about the Fed’s strategy at next week’s meeting (“Some Bright Spots In Inflation Picture” [SUBSCRIPTION REQUIRED]).

The meat of Hilstenrath’s article is devoted to the continued decline in prices for many categories in August. Gas prices, airfares, hotel rates, used car prices and rents all continued to decline last month. It’s for this reason that I suggested two Saturday’s ago that a cool August CPI Report Tuesday morning could allow the Fed to hike only 50 points as opposed to the 75 their rhetoric has been suggesting.

However the last paragraph of Hilsenrath’s article puts this hypothesis to rest in my opinion:

Fed officials meet Sept. 20-21 and have suggested they are leaning toward raising their benchmark short term interest rate by 0.75 percentage point to combat inflation…. A soft inflation reading would make it easier to slow the pace of rate increases in the months ahead.

In other words the Fed is going to raise 75 points next Wednesday regardless of tomorrow’s CPI but a soft inflation print may nevertheless bring about the much anticipated Fed Pivot.