the logic of core inflation, properly.
the exclusion of food and energy is the most misunderstood convention in macro. it is not a claim that food and fuel don't matter to households — they matter most of all. it is a claim about signal.
energy prices are set globally: a pipeline headline or an OPEC decision moves them overnight, and monetary policy in washington can do nothing about either. food carries weather. both are volatile and mean-reverting — they spike and retrace on timescales shorter than policy operates on.
policy, meanwhile, works with lags measured in quarters. a central bank steering by headline would be forever chasing noise it cannot influence with a tool that arrives late. so the target's operational focus falls on the persistent components — services, rents, wages feeding into prices. the sticky stuff. that's core.
the practical translation for wednesday's print: headline is the household's reality; core is the committee's steering input. the market prices the committee. when the two lines argue, price follows core — not because the market is heartless, but because the fed is what it's pricing.
the exclusion of food and energy is the most misunderstood convention in macro. it is not a claim that food and fuel don't matter to households — they matter most of all. it is a claim about signal.
energy prices are set globally: a pipeline headline or an OPEC decision moves them overnight, and monetary policy in washington can do nothing about either. food carries weather. both are volatile and mean-reverting — they spike and retrace on timescales shorter than policy operates on.
policy, meanwhile, works with lags measured in quarters. a central bank steering by headline would be forever chasing noise it cannot influence with a tool that arrives late. so the target's operational focus falls on the persistent components — services, rents, wages feeding into prices. the sticky stuff. that's core.
the practical translation for wednesday's print: headline is the household's reality; core is the committee's steering input. the market prices the committee. when the two lines argue, price follows core — not because the market is heartless, but because the fed is what it's pricing.
how a CPI release actually happens.
the number exists hours before you see it. accredited journalists enter a physical lockup room, phones surrendered, and receive the data early to prepare their stories. at exactly 12:30 UTC the embargo lifts — and several things happen in the same second.
the agency publishes machine-readable files. news services push structured feeds. and trading algorithms — leased space, dedicated lines — parse headline and core and execute within milliseconds. the first candle of a CPI reaction is machines trading against machines on two numbers, before any human has read a sentence.
humans enter later, and differently: reading the composition. was it shelter — the lagged component? goods or services? one-off categories or broad pressure? the composition read is where the durable reaction forms, minutes to hours later — and it's why the first move and the eventual move so often point in different directions.
what to do with that as a trader is our asia desk's territory — his channel runs the release live today. what we'd have you take from this side: the print is a manufactured object, and the market's first reaction is manufactured too.
the number exists hours before you see it. accredited journalists enter a physical lockup room, phones surrendered, and receive the data early to prepare their stories. at exactly 12:30 UTC the embargo lifts — and several things happen in the same second.
the agency publishes machine-readable files. news services push structured feeds. and trading algorithms — leased space, dedicated lines — parse headline and core and execute within milliseconds. the first candle of a CPI reaction is machines trading against machines on two numbers, before any human has read a sentence.
humans enter later, and differently: reading the composition. was it shelter — the lagged component? goods or services? one-off categories or broad pressure? the composition read is where the durable reaction forms, minutes to hours later — and it's why the first move and the eventual move so often point in different directions.
what to do with that as a trader is our asia desk's territory — his channel runs the release live today. what we'd have you take from this side: the print is a manufactured object, and the market's first reaction is manufactured too.
producer prices, and the pipeline theory of inflation.
PPI measures what producers charge each other — inputs, intermediate goods, finished products before retail. the intuition: today's factory-gate inflation is tomorrow's shelf inflation, so PPI should lead CPI.
the reality is messier and more interesting. passthrough depends on pricing power. when demand is strong, producers pass costs to consumers quickly and PPI leads CPI cleanly. when demand is soft, businesses absorb costs in their margins — PPI rises, CPI doesn't, and the gap shows up in corporate earnings instead of the inflation data.
so the useful read of a PPI print is always relative to CPI's: pointing the same way, it confirms the trend and adds conviction to yesterday's story. arguing — hot PPI against cool CPI, or the reverse — it flags either margin compression or margin rebuilding, and puts a question mark over which number is telling the truth.
markets react to PPI modestly on most months, and strongly on exactly the months it argues. today's print: 12:30 UTC. read it against last night, not on its own.
PPI measures what producers charge each other — inputs, intermediate goods, finished products before retail. the intuition: today's factory-gate inflation is tomorrow's shelf inflation, so PPI should lead CPI.
the reality is messier and more interesting. passthrough depends on pricing power. when demand is strong, producers pass costs to consumers quickly and PPI leads CPI cleanly. when demand is soft, businesses absorb costs in their margins — PPI rises, CPI doesn't, and the gap shows up in corporate earnings instead of the inflation data.
so the useful read of a PPI print is always relative to CPI's: pointing the same way, it confirms the trend and adds conviction to yesterday's story. arguing — hot PPI against cool CPI, or the reverse — it flags either margin compression or margin rebuilding, and puts a question mark over which number is telling the truth.
markets react to PPI modestly on most months, and strongly on exactly the months it argues. today's print: 12:30 UTC. read it against last night, not on its own.
from the asia desk — inflation week edition.
this week his channel ran the trading side of everything we measured here. two pieces worth your time in the archive:
the core-versus-headline read — why price so often moves "against" the number the news led with, told from the desk rather than the textbook. and a story from his own early years: the first CPI night he traded, won by midnight, and gave back with interest by thursday lunch — the origin of his rule that print night is the audition and the second day is the verdict.
that second-day rule is the practitioner's version of what we described on wednesday: the first reaction is manufactured, the durable one forms when humans read the composition. same mechanism, two vocabularies.
he closes his week flat tonight, as every friday. the discipline is the content.
@equilon_mike.
this week his channel ran the trading side of everything we measured here. two pieces worth your time in the archive:
the core-versus-headline read — why price so often moves "against" the number the news led with, told from the desk rather than the textbook. and a story from his own early years: the first CPI night he traded, won by midnight, and gave back with interest by thursday lunch — the origin of his rule that print night is the audition and the second day is the verdict.
that second-day rule is the practitioner's version of what we described on wednesday: the first reaction is manufactured, the durable one forms when humans read the composition. same mechanism, two vocabularies.
he closes his week flat tonight, as every friday. the discipline is the content.
@equilon_mike.
a short history of the 2% target.
inflation targeting was invented, almost casually, in new zealand: a 1990 policy framework that gave the central bank one number to hit and independence in hitting it. it worked — inflation fell, expectations anchored — and the idea spread through the decade: canada, the uk, sweden, australia.
the fed came late. for decades its inflation objective was implicit, deliberately vague. only in january 2012 did the committee publish a formal 2% target — against PCE inflation, a detail that matters more than most readers know (we'll cover the gauge itself in two weeks).
why 2 and not 0? two honest reasons: measured inflation overstates true inflation slightly (quality improvements are hard to price), and a small positive buffer keeps rates safely away from the zero bound, preserving room to cut in recessions. zero would be purity at the cost of ammunition.
the number is a design choice, not a law of nature — and it has been argued about, publicly, by serious people, ever since it was written down. worth remembering every time a print is described as "above target." above a choice.
inflation targeting was invented, almost casually, in new zealand: a 1990 policy framework that gave the central bank one number to hit and independence in hitting it. it worked — inflation fell, expectations anchored — and the idea spread through the decade: canada, the uk, sweden, australia.
the fed came late. for decades its inflation objective was implicit, deliberately vague. only in january 2012 did the committee publish a formal 2% target — against PCE inflation, a detail that matters more than most readers know (we'll cover the gauge itself in two weeks).
why 2 and not 0? two honest reasons: measured inflation overstates true inflation slightly (quality improvements are hard to price), and a small positive buffer keeps rates safely away from the zero bound, preserving room to cut in recessions. zero would be purity at the cost of ammunition.
the number is a design choice, not a law of nature — and it has been argued about, publicly, by serious people, ever since it was written down. worth remembering every time a print is described as "above target." above a choice.
the week ahead — august 17 to 21. communication week.
wednesday, 18:00 UTC (21:00 мск): minutes of the july fed meeting. no decision — the record of one already made, and the market reads it for a single thing: the shape of the disagreement inside the committee. that thread has been running since may's four dissents.
friday: flash PMIs, the first survey read on august activity. and late august is, traditionally, podium season — the time of year when central bank speech-making concentrates.
so this week's briefs are about the machinery of communication itself:
monday — how the minutes are actually produced, and why "edited" is precisely what makes them useful.
tuesday — forward guidance: a short history of promises.
wednesday — the dot plot: nineteen opinions wearing one chart.
thursday — blackout rules: why silence is scheduled.
data tells you where the economy was. communication tells you where the committee is. the second one prices currencies.
wednesday, 18:00 UTC (21:00 мск): minutes of the july fed meeting. no decision — the record of one already made, and the market reads it for a single thing: the shape of the disagreement inside the committee. that thread has been running since may's four dissents.
friday: flash PMIs, the first survey read on august activity. and late august is, traditionally, podium season — the time of year when central bank speech-making concentrates.
so this week's briefs are about the machinery of communication itself:
monday — how the minutes are actually produced, and why "edited" is precisely what makes them useful.
tuesday — forward guidance: a short history of promises.
wednesday — the dot plot: nineteen opinions wearing one chart.
thursday — blackout rules: why silence is scheduled.
data tells you where the economy was. communication tells you where the committee is. the second one prices currencies.
how the fed's minutes are made.
they are not a transcript. verbatim transcripts of FOMC meetings exist — and are sealed for five years. the minutes are a different object: drafted by staff in the days after the meeting, circulated to participants, amended, and formally approved before release three weeks later.
that edit is the point. every sentence survived review by the very people it describes — which makes the minutes a deliberate communication instrument, not a leak. when the minutes emphasize a disagreement, the committee chose to show it to you.
the practiced way to read them is to track the counting words. "a couple," "a few," "several," "many," "most" — this is the committee's own vocabulary for the distribution of views, and shifts in it across meetings are measurable signal. "several participants" worrying about something in june becoming "many" in july is a repricing in plain text.
wednesday night, july's minutes land at 18:00 UTC. the question they answer is not what the fed did — you know that. it's how close the vote was to going the other way.
they are not a transcript. verbatim transcripts of FOMC meetings exist — and are sealed for five years. the minutes are a different object: drafted by staff in the days after the meeting, circulated to participants, amended, and formally approved before release three weeks later.
that edit is the point. every sentence survived review by the very people it describes — which makes the minutes a deliberate communication instrument, not a leak. when the minutes emphasize a disagreement, the committee chose to show it to you.
the practiced way to read them is to track the counting words. "a couple," "a few," "several," "many," "most" — this is the committee's own vocabulary for the distribution of views, and shifts in it across meetings are measurable signal. "several participants" worrying about something in june becoming "many" in july is a repricing in plain text.
wednesday night, july's minutes land at 18:00 UTC. the question they answer is not what the fed did — you know that. it's how close the vote was to going the other way.
forward guidance: a short history of promises.
central banks discovered gradually that their most powerful tool is a sentence about the future. the fed's 2003 "considerable period" — a phrase implying rates would stay low for a long time — moved the entire yield curve without moving the policy rate at all.
the zero-bound years industrialized the technique. when rates hit zero in 2008 and couldn't be cut further, promising to keep them at zero became the policy: calendar guidance ("through mid-2013"), then threshold guidance (not until unemployment falls below a level). each formulation was a stronger promise — and a tighter constraint.
that's the tension that defines the tool. guidance only works if the market believes it, and the market only believes committees that keep their promises — so every promise made narrows tomorrow's freedom. break one, and the next decade of your sentences trades at a discount.
fx relevance: guidance moves whole curves, and currencies price curve differentials. one credible sentence about next year outweighs this quarter's data. which is why the market spends more effort parsing intentions than measuring history — and why this week's releases are words, not numbers.
central banks discovered gradually that their most powerful tool is a sentence about the future. the fed's 2003 "considerable period" — a phrase implying rates would stay low for a long time — moved the entire yield curve without moving the policy rate at all.
the zero-bound years industrialized the technique. when rates hit zero in 2008 and couldn't be cut further, promising to keep them at zero became the policy: calendar guidance ("through mid-2013"), then threshold guidance (not until unemployment falls below a level). each formulation was a stronger promise — and a tighter constraint.
that's the tension that defines the tool. guidance only works if the market believes it, and the market only believes committees that keep their promises — so every promise made narrows tomorrow's freedom. break one, and the next decade of your sentences trades at a discount.
fx relevance: guidance moves whole curves, and currencies price curve differentials. one credible sentence about next year outweighs this quarter's data. which is why the market spends more effort parsing intentions than measuring history — and why this week's releases are words, not numbers.
the dot plot, read correctly.
four times a year, each of the nineteen FOMC participants — voters and non-voters alike — marks where they individually think the policy rate should be at year-ends ahead. the dots are anonymous, and the market compresses all nineteen into one number: the median.
three standard misreadings, in ascending order of cost:
treating the median as a commitment. it's a snapshot of opinions that reprice with every data cycle — dots age badly, and the committee itself insists they aren't a plan.
ignoring the distribution. a median with dots tightly clustered around it and the same median with a deep hawk-dove split are different objects. the spread is the information; may's four dissents live in that spread.
forgetting who plots. all nineteen participants plot; only twelve vote. the median can sit meaningfully away from where the actual voting majority stands.
tonight at 18:00 UTC, july's minutes land — no dots attached, but the same skill applies: you're reading the distribution of a committee, not the intention of a person.
four times a year, each of the nineteen FOMC participants — voters and non-voters alike — marks where they individually think the policy rate should be at year-ends ahead. the dots are anonymous, and the market compresses all nineteen into one number: the median.
three standard misreadings, in ascending order of cost:
treating the median as a commitment. it's a snapshot of opinions that reprice with every data cycle — dots age badly, and the committee itself insists they aren't a plan.
ignoring the distribution. a median with dots tightly clustered around it and the same median with a deep hawk-dove split are different objects. the spread is the information; may's four dissents live in that spread.
forgetting who plots. all nineteen participants plot; only twelve vote. the median can sit meaningfully away from where the actual voting majority stands.
tonight at 18:00 UTC, july's minutes land — no dots attached, but the same skill applies: you're reading the distribution of a committee, not the intention of a person.
blackout rules, and the shape of the speaking calendar.
before every FOMC meeting, a communications blackout takes effect — roughly from the second saturday preceding the meeting until the thursday after. no speeches, no interviews, no guidance from any committee participant.
the rule exists for a clean reason: in the final days before a decision, any offhand sentence from a voter would be traded as a leak. the blackout protects the committee from itself.
its side effect structures the whole market calendar. speech-driven volatility can't happen in the quiet window — so it concentrates in the weeks between blackouts, when officials fan out to explain the last decision and shade expectations for the next one. desks literally maintain speaker calendars, weighted by three things: is the speaker a current voter, how far are we from the next blackout, and is the venue one where policy signals are traditionally sent.
which is the note to end communication week on: even central bank speech is scheduled, structured, and ranked. tomorrow — the podium that outranks them all, and the asia desk's practical wrap of the week.
before every FOMC meeting, a communications blackout takes effect — roughly from the second saturday preceding the meeting until the thursday after. no speeches, no interviews, no guidance from any committee participant.
the rule exists for a clean reason: in the final days before a decision, any offhand sentence from a voter would be traded as a leak. the blackout protects the committee from itself.
its side effect structures the whole market calendar. speech-driven volatility can't happen in the quiet window — so it concentrates in the weeks between blackouts, when officials fan out to explain the last decision and shade expectations for the next one. desks literally maintain speaker calendars, weighted by three things: is the speaker a current voter, how far are we from the next blackout, and is the venue one where policy signals are traditionally sent.
which is the note to end communication week on: even central bank speech is scheduled, structured, and ranked. tomorrow — the podium that outranks them all, and the asia desk's practical wrap of the week.