How to Make Inflation Work for Your Portfolio

**Telis Demos** (0:00)
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**Telis Demos** (0:32)
Hi, Miriam. Hi, Telis. So this week we've got a big conversation about inflation. It's obviously on the mind of the Federal Reserve, to put it mildly. But it's also something that investors really need to think about and reckon with, especially people who are, and I think a lot of you out in listener land fall into this category, are fixed income investors. You buy bonds.
Bonds are very sensitive to inflation in one way or another. And so we've got a conversation that looks at what's actually happening in the inflation data, how we think maybe the Federal Reserve is thinking about it, approaching it. Obviously, it's a tenuous time in the new tenure of Kevin Warsh, the current chair of the Fed. But then also what that means for specifically parts of the bond market that are meant to address inflation. For example, the tips market. We'll tell you, if you don't know what that means, we'll introduce that acronym to you in a little bit.

**Miriam Gottfried** (1:26)
In-depth info on that.

**Telis Demos** (1:27)
And we're having this conversation with a really interesting guest. We are here with Jill Cetina. Hi, Jill. Welcome.

**Jill Cetina** (1:32)
Thank you. Thank you, Telis. I appreciate the invite.

**Telis Demos** (1:35)
Jill is a professor of finance and associate director of the commercial banking program at Texas A&M University. And Jill, you were also at both Treasury and the Fed.
So you've seen you've seen all parts of the Buffalo of the government, the government's footprint in the markets there. And you were also at Moody's for a little while, too.

**Jill Cetina** (1:58)
That's right. Yeah. And I'm reminded as you're talking about seeing both sides of a comment by Augustin Karsten, who was the Banco de Mexico governor, the central bank governor for Mexico, where he said, you know, the central bank is the bartender and the Treasury Department, the finance ministry is basically the customer at the bar. And so that's, I think, a very important kind of, you know, general sentiment to keep in mind as we kind of started on this conversation.

**Miriam Gottfried** (2:29)
I love that analogy. You know what?

**Telis Demos** (2:31)
It's happy hour somewhere, right? So let's get this started. All right. So this past week, we had a closely, closely watch. I mean, all of them were closely watched, but this one, people were really scrutinizing consumer price index print. It was 3.4%, which was a little bit better than it was in, better, I guess lower being better, than it was in June, which was 3.5.
And it seems to have, you know, taken the heat off of this debate at the Fed about whether or not rates should go up or down. Jill, what did you make of that reading? What did you think of that 3.4%?

**Jill Cetina** (3:06)
Well, again, that was the headline reading for urban non-seasonally-adjusted CPI.

**Telis Demos** (3:14)
Which takes into account everything, all the prices that the CPI sets.

**Jill Cetina** (3:17)
Correct, it's taking into account things like energy. And so, you know, if you looked at core, core came in at like 2.5, I believe.

**Telis Demos** (3:26)
Core excludes food and energy.

**Miriam Gottfried** (3:28)
Of course, food and energy.

**Jill Cetina** (3:29)
And then we also had, and I think this was maybe it covered a little bit less, you know, you may recall that Chair Powell was falling very closely in 2023 and 2024 Supercore.
And so, Supercore, I'm going to have to check my notes here, but it looks like it came in at 2.8. So actually a bit above the core measure.

**Miriam Gottfried** (3:47)
What is Supercore?

**Jill Cetina** (3:49)
So great question. Thank you for that, Miriam. Supercore is thinking about basically what's happening in terms of some of the services, you know, that are very sticky. Things like, you know, just in general, you know, entertainment, medical care, those types of things.
And the reason that there was at least at one point in time a focus on Supercore from the Fed was there was a thought that this perhaps, you know, was a tell on what might happen in terms of wage inflation kind of going forward.