# Kathleen Hays Presents: Central Bank Central
## Simons: September Data Bring “Totally Different Texture” to Inflation Environment
Jefferies Chief Economist says last four months of CPI, PPI data show less energy price cooling, pickup in core inflation, and a Fed that is not restrictive enough yet
Thomas Simons, chief U.S. economist at Jefferies, has over 20 years of experience in analyzing economic data and Federal Reserve monetary policy with a strong background in financial economics and bond markets. He joins me after the September CPI and PPI reports have been released and both have come in hotter than expected, just ten days ahead of FOMC’s October meeting.
Before the Fed’s September meeting, Tom says the latest inflation data were “showing something for everyone... if you were looking for signs that inflation was becoming more entrenched and stickier or wasn’t coming down fast enough, there was plenty of that.” And “plenty of details” that suggested that price <pressures>, which had been persistent in the past, were possibly heading “closer to the 2% target without needing to hike.” In fact, last month, before the Fed’s September meeting, he was not sure the FOMC would or should hike its key policy rate for the first time since 2023.
”_**But this month’s data set brings a totally different texture to the inflation environment. I would say that the data that we got this week was much worse,”**_ he says. “You know, I think that the CPI surprise-to-the-upside was in a number of categories that had been kind of moving in the right direction. You know, shelter is a prime example; we had pretty significant increases in OER and rent.”
”There’s also an argument to say that they shouldn’t react to just one month’s worth of data, but**I don’t think it’s just one month’s worth of data,”**Tom adds. “I think that it’s actually, you know, four months of data that showed you didn’t really get that much cooling from energy in the summer, the core starting to pick u**p. We’re not restrictive enough.”**Tom and I also look at the torrent of economic reports out from retail sales, which show a consumer who is still holding evens as higher gasoline prices pinch their wallets and jobless claims, to the Philadelphia and New York Fed manufacturing surveys, which show no sign the economy is broadly weakening, and the Dallas Fed’s survey, which shows the sector “going gangbusters.”
In all of this, he sees an economy that remains notably durable even as inflation pressures re-emerge and complicate the Federal Reserve’s policy outlook. Yet the same resilience that supports growth may also allow price pressures to persist, leaving the Fed focused on restoring inflation to target without unnecessarily causing a recession.****Tom also sees the Fed itself raising a red flag on inflation in the wake of these two big U.S. inflation reports when it released on the same day its latest Beige Book—which contains surveys from each of the 12 Fed district banks two weeks before its policy meetings each cycle.
“This one was more interesting than usual,” as it communicated concern about rising prices leading to rising inflation expectations. He warns that if “everyone is talking about how much more inflation is going up,” then currently well-anchored expectations might be more at risk.
Tom does not rule out all of this adding up to a Fed rate hike this month.” One rate hike isn’t going to be enough. You got to keep going. _**I think <October> is very live.”**_
“You know, it’s hard for me to look at monetary policy in a broad sense and say that it’s too tight right now,” he says. “_**I think the debate is more about whether it’s actually tight at all**_ or, you know, if it’s _**if it’s tight enough**_.
In Tom’s view Warsh is the same inflation fighter as he was when he was Fed governor during the severe economic weakness of the late 2000s and the early 2010s but will “not drive the economy from where it is now into absolute shambles, just for the sake of getting inflation down.”
