The Speaker said that inflation dynamics have changed in that core CPI accelerates late cycle because of shelter. The shelter index rose 3.3 percent over a 12-month span. This contributed to consumer prices rising in 2019 at the fastest pace since 2011 and picking up to 2.3 percent in January from a year earlier.

However, the Speaker does not see inflationary pressures sustaining and in fact expects core inflation will trend lower during 2020. Core inflation is a laggard and by year’s end shelter costs will decelerate. Energy prices are also starting to become a drag on expectations which should keep the inflation rate relatively well contained.

Muted inflation should keep a lid on bond yields and support asset prices. The Fed is not likely to change interest rates again for a while.

Source: Macrobond