Reinhart Week in Review by Madison Investments 10.11.2024

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INFLATION

The Consumer Price Index (CPI) rose 0.2% in September. The core CPI, excluding food and energy, rose 0.3%. Year-over-year, consumer prices are up 2.4% while core CPI has risen 3.3%. Producer prices (PPI) were unchanged in September and are up 1.8% over the last twelve months.

Our Take: The September CPI was surprisingly higher than expected. The upside surprise was probably not enough to prevent the Federal Reserve (Fed) from cutting rates again in November, but this month’s report serves as a reminder that the fight against inflation has not yet been won.

FOMC MINUTES

This week, the Fed released the minutes from the September FOMC (Federal Open Market Committee) meeting. The minutes show that although “some participants” would have preferred a smaller, 25 basis point cut, a “substantial majority of participants supported” the 50 basis-point move. Also, there was broad consensus that the labor market was cooling and that despite still elevated inflation levels, risks to price stability had diminished. Aside from the minutes, there was a fair amount of chatter from FOMC members this week with each one providing their perspective on the path of rates going forward. These members noted that a balanced approach with a more gradual path to a neutral policy stance will likely be appropriate.

Our Take: There was nothing surprising in the minutes. While the direction of future rate changes is clear, the pace and timing remain uncertain. Given the comments this week, members seem to agree a careful, data-driven approach to policy normalization remains appropriate.

MUNICIPALS

All seven members of the Chicago Board of Education have resigned. Their resignations come amid the city’s contract negotiations with the Chicago Teachers Union. In addition, the district is facing an expected $300 million shortfall. Chicago Mayor Brandon Johnson and Chicago Public Schools CEO Pedro Martinez do not agree on how to handle the shortfall. Mayor Johnson had suggested that CPS take out a short-term high-interest loan to cover the shortfall while Martinez and the BOE did not agree that more borrowing was the answer.

Our Take: Chicago Public Schools are faced with a budget gap of approximately $128 million along with an unpaid pension payment of $175 million that CPS owes the city for its non-teaching staff. No matter who is on the new Chicago BOE or leading the district, the shortfall exists and must be addressed. The power struggle between Chicago City Hall and Chicago Public Schools illustrates how politics can shape municipal bond issuance and credit quality.

About Reinhart Fixed Income
“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”). MAM and MIA are registered as investment advisers with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison’s toll-free number is 800-767-0300.

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