By James Langton
(October 18 – 11:55 ET) – BMO Nesbitt Burns chief economist Sherry Cooper says that markets want an easing of interest rates to help bail out stocks, but inflation is running too hot to offer much hope.
This morning the U.S. core CPI showed recent acceleration, rising 0.3% in September at a 2.7% annual rate over the last three months. Cooper says tobacco and apparel prices were big problems in September and removing them from the index would change the story. Increases in these niches were partly offset by larger-than-normal price declines for information services and computers.
Energy prices were up 3.8% in September, and Cooper says they will continue to rise in coming months, spilling over into other markets and boosting the core rate.
Cooper says the Fed won’t cut rates until the inflation growth slows, despite evidence of a slowdown or weak stock markets. “The Fed will be reluctant [to ease rates] while CPI core is still accelerating. The market will probably get its way eventually. But that does not mean the Fed will validate the markets’ beliefs before proof of a slower CPI is on the table.”