So here me out: PCE data and CPI data both show a forward inflation rate of 1.2% annualized, and even with a margin of error between 0.1-0.2, it would be 1.2-2.4% forward annualized inflation. In that case, when the YoY inflation metric starts from July 2022-July 2023, with June 2022 being peak inflation, it seems that the real federal funds rate will be positive significantly. That is going to cause heavy deflationary action unless the feds reverse course. With the lagging effects of interest rates, we still haven't seen the full effects go through the economy, so I would not be surprised to see 0% month over month PCE and CPI data.
However, the Fed is adamant on getting FFR to 5%+ with no sign of looking at softening data. It's target focused on wage Inflation which might make the rest of the economy suffer deflation to reach target.
Makes me wonder if the Fed is trying to intentionally cause deflation so that inflation is much harder to roar back once the Fed “eases” the rates. Gonna be a sour economy for the next year or two.
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