Following another reasonably hot U.S. CPI report yesterday, it’s time to dust off the old sell-side charlatan chart comparing today’s inflation to the 1970s. Honestly, I find this comparison absurd in many ways, as the drivers of inflation are different now. Still, there is an interesting resemblance, which got me thinking…

Inflation in the U.S. is trending around 3-3.5%, and the Fed has made no progress over the past 3-4 months toward the 2% target. Getting back to 3% was always the easier part, but reaching 2% is both costly and, from a politician’s perspective, probably not worth it.

Once we hit 2-3% inflation and saw even a hint of weakness in the labor market, the Fed responded with a hasty 50bp rate cut (and signals of more), as the cost of pushing inflation lower became too high. Inflation dynamics have accordingly likely bottomed, and 2025 is set to be re-inflationary in several ways.

Chart 1: Inflation versus the 1970s