Last week’s Consumer Price Index report showing inflation — at least by some measures — hit its lowest level in October since the beginning of the year capped a massive rally in stocks and bonds.
But is the market overreacting, and does the report essentially signal that inflation has finally and truly peaked and that the Federal Reserve is just about to tighten? It’s too early to declare victory.
The reports were encouraging at least, certainly, but whether or not we are home free remains to be seen. Headline CPI rose 7.7% from a year ago, down from September’s pace of 8.2% and the smallest year-on-year increase since January.
The core index – which excludes food and energy prices – rose 6.3% from the previous month’s 6.6% pace. But the monthly increase in headline inflation was 0.4%, unchanged from September.
Does all that justify the 5% jump in the NASDAQ last Thursday and the sharpest one-day drop in bond yields in more than 10 years, with the yield on the benchmark 10-year Treasury note falling from 4.15% to 3.83%? (The bond market was closed on Friday for Veterans Day.)
If you believe Wharton professor Jeremy Siegel, who has been saying for months that the Fed is seriously overreacting to inflation, last Thursday’s huge rally was justified.
Not only this he told CNBC “Inflation is basically over,” but that “If the Fed uses the right statistics, and not the faulty statistics they’ve been using, then we’re in negative inflation mode.”
Siegel specifically cited the cost of housing and rent, which he says has inflated much of the data the Fed uses to set interest rate policy. Once the Fed sees the light, it says…
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