TAKE A HIKE — So far this year, the Federal Reserve has taken out its giant sledgehammer (interest rate hikes) and bonked the economy on the head five times to try and beat down the kind of nasty spike in inflation not seen since "E.T. the Extraterrestrial" topped box charts in 1982. It's all done … well, pretty much nothing. Consumer price data for the month of September released today showed so-called core inflation — which strips out volatile food and energy — rising to 6.6 percent from the same time last year, the hottest pace since E.T. gobbled up all those Reese's Pieces (Google it, very young people). Headline inflation including food and energy rose at an 8.2 percent pace, down but only by a hair from 8.3 percent last month. What Chair Jerome Powell and the Fed care about is the core number . And despite the five rate hikes totaling 3 percent this year, the Fed has made essentially no progress in slowing broad-based inflation that is especially acute in rents and services, including health care and transportation. Core inflation rose 0.6 percent in the month of September, just as it did in August. What does this all mean? Well, first it means the Fed will keep raising interest rates at a rapid clip, including three-quarters of a point (at least) at its meeting next month. Second, it means that Democrats hoping for more relief from voter anger (and GOP attack ads) over inflation before the midterms are not going to get it. While the party could still somehow manage to overcome electoral history and economic misery and hold onto the House and/or the Senate, it will have to rely on swing voters animated by abortion, fear of the Donald Trump-dominated GOP and other issues to do it. Because the economy — despite rock-bottom unemployment of 3.5 percent — is going to remain an ugly, dead weight slung around their necks. Not only have the Fed rate hikes thus far done nothing to trim demand and tame prices, they have arguably pushed in the other direction, jacking up mortgage rates to 20-year highs near 7 percent, thus making buying a new home out of reach for many Americans. That, in turn, has helped drive up rents. The owners' equivalent rent index jumped 0.8 percent in September, the largest monthly increase since June 1990, when the Internet did not exist and the Washington NFL team actually won games. In other words, congrats, younger Americans! You can't afford that house. But worry not! You also get to pay insanely high rent. Fed officials and economists in general still argue that inflation as measured by CPI probably peaked in June at 9.1 percent. And they point to other measures, like producer prices and surveys of businesses showing less-messed-up supply chains, to suggest inflation pressure is really easing more than backward-looking numbers like CPI show. They may be correct. But it's not a lock. And while the Fed really just has that one blunt instrument at its disposal, the economy appears to be screaming out for structural reforms, especially on housing and immigration. Many economists argue that reduced legal immigration during the Trump years and a more stringent approach to undocumented workers helped make an already tight labor market even tighter, driving up employer costs and overall inflation. There is also nowhere near enough housing supply to exert downward pressure on prices. These are broader issues we can discuss another time. The Biden administration is trying to address some of them with industrial and "care economy" policies. But that's a long-term project. Republicans, meanwhile, mostly want to focus on the supply side of the economy, meaning slashing taxes and regulations on businesses, especially energy producers. While this plays out, the Fed will keep using its sledgehammer until unemployment starts to rise, wage pressures ease, consumer and business demand falls and prices drop back toward the central bank's annual goal of inflation around 2 percent. And as it swings away, the risks of bashing the economy into serious and prolonged recession rise. OK, so if the news was so bad, why did Wall Street whipsaw from crashing at the open today to closing sharply higher? The short answer is: Who knows? Wall Street is weird. It's fun to try and assign a rational reason for a single day's trading. But also largely impossible. Among potential reasons: hope that the U.K. is rethinking its wild tax cut plans; general seller fatigue after days of declines; and a belief that the Fed will hike so much that it causes a sharp recession and has to start cutting again (sounds crazy, I know). While we wound up on the good side of the swing today, this kind of volatility is usually a sign of broader dangers ahead. It's certainly not easy on anyone's nerves. And continued uncertainty over (among many other things) inflation, the Fed and Russia's invasion of Ukraine promise more roller coaster days ahead. And the possibility of flying right off the rails. Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight's author at bwhite@politico.com or on Twitter at @morningmoneyben.
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