Sticky Inflation, Cut-Happy Fed: Your Playbook

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Inflation Won’t Budge

Core PCE, the Fed’s favorite inflation measure, held at 2.9% in August. Headline PCE ticked up to 2.7%, both above the 2% target.

Goods prices were tame (up 0.1%), but services climbed 0.3%, housing costs jumped 0.4%, and groceries weren’t shy with a 0.5% rise.

Coffee, beef, apples, pick your splurge, they all cost more.

The sticky part isn’t that inflation is roaring. It’s that it’s jogging in place. Powell can cut rates to cushion jobs, but inflation’s still there, like gum on your shoe.

Not enough to stop you walking, but annoying with every step.

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Consumers Refuse to Quit

Here’s the twist: shoppers aren’t slowing down. Spending grew 0.6% in August, incomes rose 0.4%, and the savings rate climbed to 4.6%.

That’s not a broke consumer. That’s a resilient one.

It’s why stocks popped after the PCE report.

Markets are betting 91% odds on another cut in October, because if consumers are still opening their wallets while inflation drifts sideways, Powell has cover to cut again.

The tone here is revenge spending lite. Households are still splurging selectively. Think Costco runs and Bonvoy points, not Rolex binges.

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The Setup for October

All eyes now on the Sept CPI report (Oct 15). The Cleveland Fed expects a 3.0% print, the year’s high.

If that’s hot, expect hawkish noise. If tame, the easing path looks smoother.

For now, Powell calls policy “modestly restrictive.” He means we’re not easy yet, but we’re leaning there.

His play is to walk the tightrope. Cut too much, inflation re-flares; cut too little, jobs crack further. Either way, he’s juggling fire.

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What This Means for You

Friend-to-friend breakdown:

• Debt relief incoming. Credit cards and HELOCs see small cuts as prime rates fall. Mortgages drift down if Treasuries cooperate. Don’t wait for a mythical perfect bottom. Get your paperwork ready.

• Bonds: halfway happy. Intermediate Treasuries benefit if cuts keep rolling, but sticky inflation caps the rally. Ladder maturities to spread risk.

• Equities: rotation risk. Rate cuts perk up cyclicals and small caps. Tech stays strong, but the baton can pass to more boring names, think construction, logistics, salvage cars.

• Tariffs: margin headaches. Import-heavy companies get squeezed. Domestic players and pricing-power brands win.

• Cash isn’t king forever. High-yield savings slip lower as cuts pile up. Better to leg into equities or bonds in stages.

Politics in the Mix

Oh, and it wouldn’t be a Fed week without political fireworks.

Trump wants faster cuts, Miran wanted a half-point, and courts had to step in to keep Lisa Cook at the table. You’ve got hawks, doves, and politics in the same cage.

That’s why communication risk is so high. A single Powell phrase can swing yields 20 basis points and move stocks intraday.

For traders: size smaller, use staged entries, and expect whiplash.

The Cheat Sheet for Fed-Watching

• Jobs data: Payrolls and claims decide whether October is one cut and done or open bar.

• Tariff talk: If Powell says temporary, markets cheer. If he stays persistent, caution rules.

Dots move bonds, Powell’s tone moves stocks.

Positioning for October

Here’s the practical playbook:

• Run a barbell: some safe havens (staples, healthcare) paired with cyclicals that sprint on rate cuts.

• Favor domestic earners with clean supply chains. Tariffs still matter.

• Stick with pricing power: brands that can flex promos without wrecking margins.

• Small caps: choose balance sheets that can actually take a punch, not just the cheap tickers.

Consumers in Selective Splurge Mode

Here you should act cautious but not broke. Paychecks feel thinner, jobs are wobblier, and groceries still sting.

So households are clipping coupons, trading down brands, and saving their splurges for things that matter, like travel, loyalty perks, and services.

That’s why companies with savvy pricing strategies, with more good-better-best options, creative promos, or loyalty ecosystems to keep customers without torching margins.

Think of it as trading down without tapping out.

Risk Management for This Week

Keep it simple:

• Trim some gains if you’re heavy in high beta.

• Stage buys around Powell’s speeches, don’t chase the rip.

• Options? Short-dated call spreads on cyclicals are a clean way to express a three-cut view without overpaying.

• Long-term, remember that the direction of travel is toward easier policies. Build for that, not just this week’s headline.

Bottom line: the Fed has an inflation problem, but it’s cutting anyway.

For you, that means more chances to reposition into cyclicals, small caps, and domestic operators that can play both sides of this strange mix.

Don’t chase, don’t panic. Build with the trend, sip your coffee, and let Powell juggle the torches.

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