EXCLUSIVE: CPI Increase 'Just A Hiccup,' Says Former CME Economist: 'Inflation Is Well Under Control' (CORRECTED)

Editor’s note: this story has been corrected to note that Bluford Putnam is a former, not current, chief economist at CME Group.

The Federal Reserve has inflation under control and the U.S. economy is doing just fine, according to a prominent economist.

Speaking on Benzinga‘s “PreMarket Prep” on Thursday, Bluford Putnam, former chief economist at CME Group, said December consumer price inflation (CPI) data was unexpectedly high, but not a problem that would concern equity markets for too long.

“It’s a hot number, but I think this is just a hiccup, Putman said.

He added: “I think a January rate cut is now off the table, but March and May are still on — but probably the market will think more about May than March. But I’m still in the camp that inflation is well under control.”

But markets weren’t convinced. All major indices were lower in morning trade following the data. The SPDR S&P 500 ETF Trust SPY, which tracks the S&P 500 index, was down 0.7% in midday trade.

Also Read: Fed Rate Cuts In March? Keep Dreaming, Economists Say As Inflation Spike Shakes Markets

Inflation Skewed By ‘Imaginary Number’?

Putnam reiterated a point he made when talking to Benzinga in November. That inflation would be at, or below, the Fed’s target rate of 2% if the CPI data were interpreted more accurately.

“The CPI measure of inflation has problems. A quarter of the headline rate comes from owner equivalent rents — which is calculated as if you rent your house to yourself and you collect the money. The statistical people then put that money in your account — even though you don’t have it — and they count it as personal income.

“It’s very much an imaginary number, and if you take it out of the data, headline CPI has been under 2% for four or five months,” he said.

Recession In 2024? Not Likely

And so it looks like the Fed could be keeping interest rates higher for longer. Is this a concern for the economy and, given that many analysts forecast growth to slow further in 2024, could higher rates even prompt a recession? Putnam thinks not.

“We’re going to post gross domestic product growth of 2.5%-3% for 2023. I wouldn’t even call that a soft landing — I would say that is either average or slightly above potential GDP growth,” he said

Much will depend on the labor market. As long as people have jobs, they will keep spending money. It’s when people fear they might lose their jobs that they slow down spending. But Putnam saw few problems here.

“Who’s losing their job at the minute? If they are, they’re getting a new job fairly quickly as we’re still creating a lot of jobs every month, so there is no sign that we’re deviating from trend,” he said.

Putnam insisted higher rates don’t cause recessions, although they do trigger problems that cause recessions. As an example, he cited the financial crisis, where rising interest rates forced delinquencies on mortgages which triggered a collapse in the securitized loans market.

He added: “I don’t think interest rates cause recessions — they have to trigger something that then causes it. And we don’t have cause out there. The labor market is still strong, we’ve had union settlements — it’s OK.”

So Why Keep Interest Rates At 4% Or Higher?

Given Thursday’s higher-than-expected inflation data, the Fed will certainly need to see further evidence that prices are cooling.

Later in the month, the Fed’s favored measure of inflation will be published — personal consumption expenditures — which have dropped towards the Fed’s 2% target in recent months.

But Putnam believed the Fed has a credibility problem that stems back to the pandemic-era stimulus that drove inflation higher.

“The Fed spent a long time telling us that this inflation was transitory. Then they raised rates and said they were going to keep them higher for longer — that’s what they’ve been saying for a year — so they don’t want to unwind that guidance so quickly.”

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