Is transitory disinflation here to stay?

February 17, 2024 at 13:13 PM EST

I’ve discussed the risk of transitory disinflation before, and it manifested itself in the form of hotter-than-expected January CPI and PPI reports. The reports rattled the bond market and expectations of the first quarter-point rate cut has been pushed out from May to June and a slower rate cut trajectory for the remainder of year.

As a reminder, here is Fed Chair Powell reply in to a question about the timing of rate cuts in his 60 Minutes interview: “We just want to see more good [inflation] data along those lines. It doesn't need to be better than what we've seen, or even as good. It just needs to be good. And so, we do expect to see that.” The hot CPI report was undoubtedly a shock to Fed officials who had watching a series of tame inflation reports.
The latest BoA Global Fund Manager Survey showed that only 4% of respondents expect higher rates and 7% expect higher inflation. It was therefore no surprise that bond prices skidded badly in the wake of the CPI report.

Do the stronger-than-inflation reports mean a pivot to a “higher for longer” narrative? Here are bull and bear cases. The full post can be found here.

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Is transitory disinflation here to stay?