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with brian beaulieu
WEEKLY FED WATCH
This week on Fed Watch, ITR Economics Consulting Principal and Chief Economist Brian Beaulieu delves into the latest economic data, including an analysis on the Consumer Price Index, Producer Price Index, inflation trends, and the 10-year bond yield. Although the Federal Reserve might contemplate further rate cuts, market signals could tell a different story. Tune in to learn more!

Key Episode Takeaways
- 0:23 – US Consumer Price Index and inflation trends analysis
- 2:07 – US Producer Price Index and US Retail Sales analysis
- 4:22 – Highlighting bond market and interest rates
- 5:33 – Plan for the rising interest rates with help from our Financial Resilience program

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.
Hello, I’m Brian Beaulieu, Chief Economist of ITR Economics, and thank you for joining us for this January 17th edition of Fed Watch.
It’s interesting times going on out there. The CPI data came out this week, and I looked it over, and I thought, hmm, Fed’s not going to like this. The overall CPI rate went up. It’s going up each of the last three months. It’s now at 2.9 percent, and that’s on a 1/12 rate-and-change basis. It’s going in the wrong direction. Energy was down, or else it would have been even higher. Food is up also, and that’s kind of key in terms of, from our perspective, watching disposable personal income and discretionary income on top of that. That’s up to 2.5 percent, something that the consumer is not going to be in a great place.
Fuel oil, though, was down, so that’s good. But the old bugaboos of shelter, which is up 4.6 percent, automotive repair, which is up 6.2 percent, and insurance, which is still up there at 11.3 percent, those are all conditions that aren’t great for the consumer, so maybe that’s where the Federal Reserve is leaning.
But the overall core inflation rate, and they cite that there was some favorable movement in core inflation, is still high by virtue of their standards. They want 2.5 percent, and it moved down to 3.2 percent, which tied the lowest rate we’ve seen in 2024. We saw that in July and August, but there was no great shakes. But they’re still talking about, well, we’ll probably put through it right now. decline. More power to all of you who want to see a rate decline. I still remain skeptical.
The producer price index came out also for December, and that shows escalating inflation. The 1/12 was up to 2.8 percent. It’s now in phase B, so it is rising solidly for the last three months, and the 12/12 rate of change is at 1.2 percent, so it is also rising in phase B, and the slope of that acceleration that we’re seeing in the rates of change is normal. So this isn’t like it’s some weird movement going on. Remember the PPI is the precursor to where the CPI is going to be going. This is just X’s and O’s of understanding inflation, and that’s what makes the Fed comments to me a little bit more baffling.
Retail sales are actually good in December. We saw a slightly below average seasonal rise through December, but it was better than last year. The raw data was good. It’s enough to put the 12/12 rate of change in phase B at 3.0%, which is a normal rate of growth in retail sales. So they’re not going to be able to look at altering retail sales activity. They can point to housing stats, particularly single-family housing stats had a rough December coming in 1.4% below year-ago levels. For the fourth quarter, we were down 4.8%. So that’s still in a weakened position. The data trend for single-family housing starts is in recession now, three consecutive months of decline. That doesn’t look good, so they could go there if they want to.
But you’re getting the understanding, right? There’s a lot of mixed results. There is no big change in the industrial production trend. It’s still marginally negative at minus 0.3%. So with all that going on, the Fed says that it’s still amenable to possible rate declines. We’ll have to wait and see. Keep in mind that what the Fed does is one thing, what the marketplace does is another.
The 10-year bond yield continued to go up. It was up 11 basis points from two weeks ago. It’s at 4.61%. So the marketplace isn’t buying into this cooling of inflation scenario. And the 30-year mortgage rate went to 7.11%. We’re back above 7%, which is a noticeable change. So the Fed can do whatever it wants. The marketplace is saying businesses and consumers in general aren’t going to be seeing much in the way of interest rate relief.
Remember the bond market is much more prescient than is the Federal Reserve. So we call this Fed Watch, but just want you to know that interest rates in general, I’m gonna give you all sorts of favorable movement in 2025. As my colleagues at ITR have been saying, it’s time to lock and load at fixed rates that you can pay off in five to seven years before we hit into the 2030s. And that’s something that we’ve been stressing with our financial resiliency programs when we talk to people about their businesses and personal finances.
We’ll pick this thread back up next week on January 24th. Until then, hope you have a great weekend and a great week and plan for rise. Thank you.