Trump Fed Nominee Floats 50-Basis-Point Cut as Inflation Data Surprises to Downside

The Number That Changed the Debate

April CPI came in at 2.1 percent year-over-year. Wall Street expected 2.4. The miss sent yields diving and the Fed Funds futures market pricing three cuts by December.

A Fed nominee told the Senate Banking Committee last month that the data gives the Fed room to move proactively. Fifty basis points at the next meeting is not off the table.

The Real Rate Problem

Core PCE is running at 2.6 percent. The Fed target is 2 percent. We are not at goal, but the direction is consistent.

The neutral rate might be lower than we thought. The Fed may have been fighting last year inflation with tools calibrated for a higher equilibrium.

Fourteen of the 19 primary forecasts I track now show cuts beginning in July.

Market Reaction

S&P gained 1.8 percent on the CPI miss. The 10-year Treasury yield dropped 12 basis points in 48 hours. Housing starts picked up in April—first positive reading in five months.