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Wednesday, May 15, 2024

April CPI Still Hot at 3.4% vs Fed's 2.0% Target

Despite President Biden's "Inflation Reduction Act of 2022" (estimated to contain $500B in new spending and tax credits) and the Federal Reserve keeping its Fed Funds Interest Rate at a 20-year high, inflation at 3.4% is 1.4% or 70% above the desired or "target rate" of 2.0%.

CPI-U: This morning the US Bureau of Labor Statistics announced, "The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in April on a seasonally adjusted basis, after rising 0.4 percent in March". and "Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment."

Core CPI-U: "The index for all items less food and energy rose 0.3 percent in April, after rising 0.4 percent in each of the 3 preceding months." and "The all items less food and energy index rose 3.6 percent over the last 12 months."

Chart: CPI vs Fed Funds Rate vs Expected 10-Yr Inflation from 2004


Chart: CPI vs Fed Funds Rate vs Expected 10-Yr Inflation from 2020


Table: Raw Inflation Data from October 2023


Chart: Fed Funds Interest Rate vs S&P 500 - 1993 through today

Chart: Fed Funds Interest Rate vs S&P 500 - 2019 through today


Tariffs and Inflation:  Perhaps I should have included President Trump's tariffs as a contributor to inflation stubbornly remaining above the desired 2.0% target.


If so, then President Biden's new tariffs will make inflation worse.

Yesterday President Biden announced new tariffs on goods manufactured in China. 
WASHINGTON, May 14 (Reuters) - President Joe Biden is hiking tariffs on $18 billion in Chinese goods including electric vehicles, batteries, semiconductors, steel, aluminum, critical minerals, solar cells, ship-to-shore cranes, and medical products, while retaining Trump-era tariffs on over $300 billion in goods. 
The United States Trade Representative's Office told Reuters it anticipates the effective date will be in approximately 90 days.


Spending $500B to "reduce inflation" and then implementing new tariffs then listening to others debate the merits...

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