Picture this: You’re piloting a plane through thick clouds, and suddenly all your instruments start going haywire. The altimeter? Dead. Attitude indicator? Nope. Airspeed? Also toast.
Welcome to Jerome Powell’s world right now.
Thanks to the government shutdown delaying key economic reports, the Fed has been basically flying blind for weeks. No Producer Price Index, no retail sales data – just a whole lot of economic fog and crossed fingers. It’s like trying to land a 747 using only vibes and prayer.
But then Friday’s Consumer Price Index (CPI) report dropped like a working GPS in the cockpit. And honestly? It was exactly what the Fed needed to hear.
The Numbers Don’t Lie (This Time)
Consumer prices rose 0.3% in September and 3.0% year-over-year. Economists were bracing for worse – 0.4% and 3.1% respectively. Core CPI (that’s the fancy version that strips out volatile stuff like gas and groceries) came in even better at 0.2% monthly and 3.0% annually.
Translation: Inflation is finally chilling out.
The real MVP here was housing costs. Owners’ equivalent rent – basically what homeowners would pay to rent their own place – only ticked up 0.1%. That’s the smallest increase since January 2021, back when we thought “supply chain issues” would last a few weeks.
Sure, gas prices jumped 4.1% and did their usual thing of making everyone grumpy at the pump. But everywhere else? Pretty tame. Food prices barely budged, and even used car prices dropped (shocking, I know).
The Bond Market Called It First
Here’s the thing about the Fed – they don’t actually lead the market. They follow it, just with more fancy speeches and economic jargon. The two-year Treasury yield has already dropped to about 3.5%, and the 10-year is hanging around 4%. Both are below the current federal funds rate of 4.00% to 4.25%.
The bond market is basically screaming: “Cut rates already!” And after months of hemming and hawing, it looks like Powell & Co. are finally listening. Expect another rate cut at next week’s Federal Open Market Committee meeting.
Earnings Season: The Real Show
While everyone’s obsessing over Fed policy, the real action is in earnings season. So far, 87% of S&P 500 companies that have reported beat expectations. That’s not just good – that’s “maybe we’re not heading for economic doom” good.
Take Comfort Systems USA (FIX), which makes cooling systems for data centers. Their earnings surged 99.5% year-over-year, and the stock jumped nearly 20% in a single day. That’s what happens when companies with solid fundamentals deliver real results.
The bottom line? While the Fed figures out how to land this economic plane, smart money is focusing on companies that are actually making money. Because at the end of the day, earnings don’t lie – even when all your other instruments are broken.
So buckle up. The Fed might be flying blind, but at least they’ve got one working gauge now. And if earnings season keeps delivering like this, we might just stick this landing after all.