February CPI report is out. Overall CPI MoM rose 0.4% in February vs. 0.5% in January while the core CPI MoM rose 0.5% in February vs. 0.4% in January. Overall CPI YoY rose 6.0% in February vs. 6.4% in January and 6.5% in December. Core CPI YoY rose 5.5% in February vs. 5.6% in January and 5.7% in December.
Although we are seeing the YoY number continue to trend down, the MoM numbers don’t look good. As shown above, the commodities part of the core CPI is flat MoM but the service part is still up 0.6% MoM. The core CPI MoM is actually accelerating from 0.3% in October and November, 0.4% in December and January and now 0.5% in February. Last week’s job reportalso showed very strong job growth with 311K jobs added and 3.6% unemployment rate. I will be shocked if the Fed decides not to raise rates next week. My prediction is that they will do a 0.25% raise next week and do a few more 0.25% raises after that. The regional banking crisis is very localized. After all, normal people don’t put $250K+ into their checking accounts. Even if their banks are insolvent on a mark to market basis, they won't withdraw their money because their deposits are covered by the FDIC insurance. Only a small number of banks have a high percentage of uninsured deposits and badly managed their interest rate risks like SVB. There won’t be a widespread banking crisis and the Fed already gave banks a sweet program to borrow the devalued long-term assets at par. IMO, all the work the Fed put in for the banks is to ensure they can keep raising interest rates to clamp down the inflation without bankrupting too many banks. In other words, I believe it’s very unlikely that the Fed pause will happen next week and I hope the yield of treasury bills will go back to 5.X% so I can buy more.