Has Inflation truly been quelled?

Despite monumental money printing, the rate of inflation appears to have settled. Consumers measure inflation as CPI. This measurement includes all good and services which would typically be purchased by a household. The Federal Reserve inacts policy based upon a different metric: PCE.

Personal

Consumptions

Expenditures Price Index

Mathematically speaking, it is directly comparable to CPI. However, it intentionally excludes both food and energy. The calculation doesn't account for these because of their natural price volatility. Intentionally excluding these items prevents over reacting/controlling the market in light of natural/normal swings in commodity pricing.

Lets look at the data!

The upswing of PCE in later 2020 came as the inflation began to set in. Inflation also had momentum secondary to supply chain dynamics and global shipping logistics.

Why Does This Matter?

If you subscribe to "efficient market hypothesis" then the market has already price in this data piece. If you don't lets talk about the implications of this!

First Data to Consider: Federal Fund Rate History

The Federal Reserve have been hiking interest rates very aggressively with the hikes ranging from 75bps to 50bps. In this context, an alleviation of 25bps gives the market room to breath and paints a "dovish" picture.

Second Data to Consider: February FOMC Speculation

The ever efficient market believes are we going to get 25bps at the next FOMC. This is being said with 98.9% confidence at this time, meaning 1% chance of a 50bps: within the context of alleviating PCE and a strong labor market.

What Happens Next?

Given no sudden changes of the inflation situation, I think the market is going to continue to expect 25bps. The Federal Reserve is severely opposed to under tightening/reducing rates in fear of the 70s/80s when inflation was bad, it seemed fixed, but came back with a "second wave" which was much more devastating then the first.

Expected FOMC outcome: 25bps and neutral market volatility depending on the tone of JPow during his speech.

Unexpected FOMC: 50bps and a hawkish tone cause downward volatility.

2023 Expectation: no rate cuts