Medium-term US CPI Forecast Update

CPI growth expected to hit 2% in 2024: but not before a potentially unnerving period of stubborn growth

Overall policy backdrop remains conducive to lower inflation over time

With M2 seeing its largest fall since the Great Depression on the back of rate hikes and ongoing QT, the policy backdrop remains conducive to lower inflation. While Fed tightening has been somewhat offset by the federal government draining its TGA in 1H23 and subsequent heavy T-bill issuance draining “idle” funds in the Fed’s RRP facility, the strength of this offset is likely to taper as net coupon issuance rises.

Headline CPI expected to fall <2% in Dec 2024, core to see major disinflation

Given current trends, and a policy backdrop that’s expected to promote disinflation, I currently expect CY24 headline/core CPI growth of 1.9%/2.2%.

Current forecasts point to downside to the Fed’s 2024 PCEPI projections

For 4Q24, I expect YoY headline/core CPI growth of 2.2%/2.5%. This compares to the Fed’s current headline/core PCEPI estimates of 2.5%/2.6%. Since 2000, the headline/core CPI has averaged YoY growth 0.4%/0.3% above t…