The signal and the noise are going to be a mess for awhile

One of the most-interesting numbers to watch this week will be US auto sales. The consensus is for a fall to 14.50m from 14.75m in July but there's good reason to believe it could be even lower.

Economist Christophe Barraud cites forecasts from Cox, Wards and Truecar that are all moderately lower. Most-worrisome is J.D. Power who sees them at 13.1m units.

What's interesting is that the only signal here might be supply shortages. By all accounts, demand remains very high but car lots are completely vacant and buyers have no negotiating power. That's causing many would-be buyers to wait in the hope that inventories will be rebuilt.

The problem is that shortages of chips and cars appear to be getting worse.

US auto inventories

Not only does this make it difficult to interpret demand signals, it also skews inflation as only the buyers who are the least cost-sensitive are purchasing cars.

It all creates an impossible forecasting environment. The Fed could easily overreact to higher prices only to watch supply chains sort themselves out and prices fall. Or they could respond, only to see prices remain stubbornly high and watch demand slump in a supply-side caused stagflation.

It's a minefield out there and the pressure to do something will be intense with the chip shortage set to worsen in Q4.