Nick Timiraos
@NickTimiraos
Chief economics correspondent, The Wall Street Journal • Author, "Trillion Dollar Triage”
122 Following 495.1K Followers
Economists expect growth in the core CPI to have moderated in October to around 0.22%, though the full range of estimates is broad enough to round down to 0.1% or round up to 0.3%.
Due to the government shutdown in Oct 2025, there's no tidy year-earlier figure.
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"With no post-pandemic dynamics (the black line), core inflation edges up only modestly, peaking near 2.2%.
Allowing for stronger persistence (the red line) raises the path to a plateau of about 2.5%.
Adding stronger pass-through from oil prices as well (the blue line) produces the highest and most front-loaded response: core inflation climbs to nearly 2.8% around mid-2027, roughly 0.6 pp above the path implied by pre-pandemic dynamics, before receding toward about 2.2% by the end of 2028."
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Oil has fed more strongly into core inflation since the pandemic, according to this paper from Fed researchers.
But has inflation’s behavior changed? Or have supply shocks become more frequent or persistent?
The answer matters for how forcefully central banks should respond.
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Dallas Fed President Lorie Logan explains her support for this week's Fed decision alongside her continued view the Fed needs to make two more hikes.
"Skipping a meeting does not change the monetary policy destination. Indeed, by making the destination clear, the FOMC can better help the economy adapt and obtain the promised benefits of a skip."
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"Financial markets have been volatile in response to news on the technology investment outlook and geopolitical developments. In such an environment, adjusting policy more gradually can help households, businesses and market participants adapt to higher rates and reduce the risk that economic activity deteriorates more sharply than necessary.
Moreover, as long as market participants understand the FOMC’s policy plans, the precise timing of each rate increase has little effect on the longer-term rates most borrowers pay."
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St. Louis Fed President Alberto Musalem: "I judge that additional firming of monetary policy will be necessary, and soon."
He outlines two scenarios for inflation.
Scenario 1, which he says is more likely: Inflation stays too high unless the Fed raises rates further.
Scenario 2, which he says is less likely but plausible: No more hikes needed.
Under this scenario, the economy sees some combination of falling energy prices and lower shipping costs; AI and data-center spending pulls back sharply; or financial conditions tighten suddenly, leading to slower consumer spending driven by wealth effects.
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Richmond Fed President Tom Barkin to SiriusXM Business Radio:
"I think the direction of travel is pretty straightforward. I think the question though is pace. And so what we said at our September meeting is we signaled a gradual approach.
I think gradual makes sense when you're not much behind the curve where you want time to learn, both from the economic environment and the external environment.
And so we haven't seen much change since then. I think a gradual approach is a good way to go, and we'll see what we learn over the next period of time."
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A strong economy. Inflation making no progress toward the Fed's 2% target. Financial conditions that aren't tight. So why did the Fed hold?
Three things that stood out from the October FOMC meeting and Chairman Kevin Warsh’s press conference
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Prices of core PCE services ex-housing rose 0.37% in September, pushing the 12-month change to 3.6% and matching the highest such reading since 2024.
Core goods was also firm at 0.20%. While core goods prices were back in 2024 were falling on a year-over-year basis (as was the pre-pandemic trend), those prices are now at 2%. If core goods prices rise like this going forward, there will need to be more services disinflation for the Fed to achieve its 2% target.
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Core PCE was 0.32% in September.
The 12-month change was 3.1% (vs 3.0% in August and 2.8% one year earlier).
The 6-month annualized rate was 2.9% (vs 2.8% in August and 2.9% one year earlier).
The 3-month annualized rate was 2.9% (vs 2.2% in August and 2.6% one year earlier)
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Core PCE was 0.32% in September.
The 12-month change was 3.1% (vs 3.0% in August and 2.8% one year earlier).
The 6-month annualized rate was 2.9% (vs 2.8% in August and 2.9% one year earlier).
The 3-month annualized rate was 2.9% (vs 2.2% in August and 2.6% one year earlier)
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Economists who map the CPI and PPI into the PCE expect core prices to have increased 0.34% in September (4.2% annualized, 3.1% year-over year)
This would be the highest monthly reading since January's 0.40% core PCE print
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I have just informed my colleagues that I will step down as @ECB President on 7 February 2027.
It has been a source of great pride to serve this institution.
I thank all of those who have supported me on this journey over the past seven years.
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Economists who map the CPI and PPI into the PCE expect core prices to have increased 0.34% in September (4.2% annualized, 3.1% year-over year)
This would be the highest monthly reading since January's 0.40% core PCE print
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For months, a common view has been that the AI boom is carrying the U.S. economy and that it is too flush with cash and too big to care much about interest rates.
Kevin Warsh pushed back against both framings on Wednesday. "Interest rates get in the cracks," he said, and growth is "broadening" beyond tech.
Those two positions could point in opposite directions for how high rates need to go. Stronger aggregate demand could argue for more, but an AI boom that's more rate sensitive means each increase does more work.
"He's basically saying they need to do more, but it may not be all that much more."
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The key question ahead of the Fed meeting today was if economic activity is strengthening and broadening, inflation remains elevated, and most people think rates need to go up again, why wait until December?
Here's how Fed Chairman Kevin Warsh asked the question (put to him by @colbyLsmith of the NYT).
Boiled down, his answer suggested the Fed has built enough credibility that waiting six weeks costs little, so they’ll take the extra information. He never says that outright. Most of the answer offered a defense of his record rather than a rationale for this decision.
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Warsh: The Fed will have 8 meetings as scheduled in 2027, but one won't have a vote on monetary policy settings and instead focus on strategy. In 2028, two of the 8 meetings will be devoted to policy strategy. Those meetings won't be "live."
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FOMC statement: "The accumulation of more information will help the committee determine the policy stance appropriate to ensure a timely return of inflation to the committee’s 2% goal."
The Fed holds steady.
The decision is 10-2.
Lisa Cook and Beth Hammack voted for an increase.
The Fed holds steady.
The decision is 10-2.
Lisa Cook and Beth Hammack voted for an increase.
There are two Fed debates playing out right now: One over where to set rates, and another over how much officials should say about how they see the future.
Kevin Warsh has made a point of saying less. His Fed colleagues haven't. They're speaking at least as much as they were a year ago.
Where things have landed “is probably the worst of all possible outcomes,” says one former Fed economist. “Nobody can force him to talk for the committee. And frankly, he can’t force other committee members to shut up."
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Nearly two-thirds of builders said immigration enforcement is affecting their labor force, up from 23% in March and 13% a year ago, according to a September John Burns Research & Consulting survey.
“We’re almost dead in the water because our workforce is gone,” said Scott Brannock, president of Jacksonville-based Tidewater Homes and the Northeast Florida Builders Association.
“We have national builders who are missing projections, losing hundreds of thousands of dollars because they have slabs sitting on the ground and no one to frame.”
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Kevin Warsh's quip definitely got a laugh from the audience in Bangkok.
"Kristalina, you pronounce it A.I. In the U.S. we now pronounce it S.I., just so you know."😆
Fed Chair Kevin Warsh threading the needle by joking(?) that in the US, AI is now called "SI," and then proceeds to refer to it using words like "this technology"
After two weeks in which no fewer than five Fed officials hit some variant of the "no urgency" theme in their public comments (including as recently as Wednesday before and after CPI) Fed Chairman Kevin Warsh said of providing market-guiding hints, "We're not in that business anymore."
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Last round of Fed-speak before Warsh tonight and the October blackout. All of these comments were made Wednesday:
Bowman (a few hours *before* CPI): "I don't feel any urgency... We really need to take some time and understand how things will evolve within the economy."
Goolsbee (Yahoo, post-CPI): He called the report "discouraging" and flagged services inflation that was at 5% annualized, which "you can't really attribute ... to tariffs, to oil prices." He warns that the AI data-center buildout is now feeding demand-side overheating: “The bigger the hype about AI’s future promise… the more temptation we have in the next six months to increase the investment in data centers even more… All of those are danger signs for short run overheating.” But he caveats that he doesn't want to overstate the importance of any one report.
Daly (Reuters, post-CPI): “More likely than not to need additional adjustments,” but no rush: “Why force urgency when you don’t need to have urgency?… We have more meetings ahead of us.”
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