Core CPI Has Likely Bottomed At 5.5% - The Fed To Hike Into The Recession

The CPI expectations for March
I have been warning that the disinflationary trend from "peak inflation" in 2022 is likely to be short lived.
Let's look at the inflation expectations for March, to be released on April 12. The consensus expectation for core CPI is 5.6%, which is higher than 5.5% in February. On the other hand, the headline CPI is expected to fall to 5.2% from 6% in February. However, the big drop in headline CPI inflation is due to the base effect, as the price of energy spiked last year due to the Russian invasion of Ukraine.
Thus, the core CPI inflation is the main driver for the Fed policy outlook, with the market implications. In fact, Fed Chair Jay Powell has been clear that the service inflation ex housing is the key metric in evaluating the "sticky inflation" pressures.

What's ahead for April?
The Cleveland Fed is publishing the Inflation Nowcast on a daily basis, and the latest update is generally consistent with the market consensus expectations for March, although there is the risk that the core CPI comes at the higher than expected 5.7% reading (if you round up the 5.66% Nowcast expectation).
However, the Nowcast core CPI forecast for April is still at 5.6%, which suggests that the disinflationary trend in the core CPI has really plateaued at a very high level at around 5.5%.

The disinflationary trend has ended
In fact, when you look the recent trend in the core CPI, the March and April core CPI readings are expected to match the January core CPI, which is a just a notch below the December 2022 reading of 5.7%. That would suggest that the core CPI inflation will be in the 5.5-5.7% range for five months - well above the 2% target.

As previously stated, the focus is on the core CPI, and specifically the service inflation ex housing. The goods inflation has decreased as the supply chains re-opened. So, this is not a worry anymore? Not true.
Here's the Manheim index of used car prices, month over month percentage change. The disinflationary trend in used car prices in 2022 has ended in November 2022. Since December 2022, the used price prices have been rising - that's four months of rising used car prices. This also is consistent with the thesis that the disinflationary trend has ended, possibly even for the goods.

The geopolitical inflationary shock brewing
The used car prices index is the key inflation indicator. During the COVID crisis many have viewed the used car prices as the COVID-related bubble, which would burst as soon as the supply chains improve.
...while we could already be in a recession
The inverted 10Y-3mo yield curve spread has been sending the recessionary signal since October of 2022. The recent banking crisis likely is the trigger that pushes the US economy into the recession - by producing a much tighter lending environment and possibly the credit crunch.
In fact, many are predicting that we are already in a recession in Q2 of 2023. However, it's difficult to envision a recession with the still historically tight labor market and the 3.5% unemployment rate.
The initial claims for unemployment is the leading indicator for the labor market, and until last week we were told that the new claims were still below the 200K level, which was very low. However, last week we got the major surprise with the new claims revisions.
Initially, the new claims for the week of March 26th were reported at 198K. This number was revised to 246K last week, and the recent new claims number was reported at 228K. These revisions paint a very different picture for the labor market, as we now track the steady rise in the new claims since January 29th - this is consistent with an unfolding recession.