Will the Federal Reserve engineer a soft landing?
Jul 16

This market will settle to YES if the June 2024 readings of Core PCE Inflation and Unemployment (defined by the BLS) read as the following:

  • PCE Inflation excluding Food and Energy is below 2% YoY

  • Unemployment is below 5.5% (2% above the recent low of 3.5%)

This market will also resolve to NO if at any time between Nov 2022 and June 2024 the Unemployment level reads above 5.5%.

Creator policy: I won't bet.

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As of this morning, Core PCE index for April is 121.909. June 2023 was 119.189, which means we are at 2.28%. Unless we see radical deflation in the next month, this is over.

bought Ṁ1,000 NO

Looking at https://fred.stlouisfed.org/series/PCEPILFE:
June 2023 was 119.189. So the target is 121.572 (maybe 121.512, to round to to 1.9% instead of 2.0%
Feb 2024 was 121.165

121.572/121.165 = 1.0034, so we have 0.34% remaining for 4 months. Seems quite unlikely given current rates.

predicts NO

The quarterly number for Core PCE came at 2.4% for the Q3'23. This means annualized quarterly core PCE inflation can average at most 1.8% for the next 3 quarters.

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Core Inflation progress so far (0.16% to achieve 2% after 12 months)

Jul23: 0.218%

Ago23: 0.144%

Sep23 (Cleveland Fed forecast): 0.29%

Total: 0.65% (0.49% per quartee to achieve 2%)

This market seems cheap

predicts NO

Trailing two months inflation is still well over 2% annualized

Unemployment at 3.8%

Unemployment back to 3.5%, lol

It'll be a matter of the Core PCE

Core PCE at 4.61%, there's one last print before we start the comps that will ultimately adjudicate this market.

What happens to this market if it expires before inflation gets below 2% and before unemployment gets above 5.5%?

@JonathanRay this market resolves to NO

The bond market moved 70bps and this market didn't move

actually for January it went up to 4.7% YoY change. Market is currently at 30%. Might be a bit high.

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This market skepticism is beyond me.

@MP core PCE below 2% is what gets me. 2% is the target, so if they are on target, there's only a roughly 50% chance it'll be below 2%.

@chrisjbillington yeah if they had allowed up to 3% it would have been reasonable to bet yes

@MP %2 yoy is the sticking point. It's entirely possible the Fed will consider it undesirable to move below the %2 target.

Link to BEA page with PCE excluding food and energy is here https://www.bea.gov/data/personal-consumption-expenditures-price-index-excluding-food-and-energy, that's actually already at 4.4% for December 2022 so it actually won't need to drop too much over a year and change for this to resolve true.

I don't know if the deflationary pace is really that encouraging

betting no, but mostly because below 2% seems too low of a resolution criteria, the 2% target is supposed to be symmetric and so even if the Fed were ~on target, it should be 50/50 as to whether Core PCE is above or below 2% (but aiming to be close on either side)

@IsabelJ Yes, but in reality people prefer just below 2%.

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