Impact of Core vs. Headline CPI on Fed Rate Projections
I'm still trying to get my head around how the Fed truly weighs headline versus core CPI when they're talking about future rate hikes. We saw the last headline print come in a bit hotter than expected, but core CPI, while still elevated, showed some moderation. Seems like the market often focuses on the headline number for the immediate reaction, but I keep reading that the Fed really drills down into core for its policy decisions, given its less volatile nature.
My question is, how much of a lag do you guys typically see between a sustained dip in core CPI and the Fed actually signaling a pause or even a pivot? It feels like they're always looking in the rearview mirror, and I'm trying to gauge if a couple of decent core prints are enough to shift their hawkish tone, or if they need to see a much more prolonged trend. Is there a certain threshold or consecutive number of prints you personally look for before you'd expect a change in their narrative?
It's a valid question. The Fed often emphasizes core inflation as a better gauge of underlying price pressures, stripping out volatile food and energy. However, headline numbers still influence public perception and can pressure them into action, even if core is softening.