Has Inflation Peaked?
Diupdate
An unpopular opinion I have is that inflation has already peaked. Just as the Fed took too long to raise interest rates. They now appear to be raising the Federal Funds rates too high in their attempts to mitigate runaway inflation.
For being such an unpopular opinion - it is oddly evident almost anywhere you care to look:
Unemployment has been resilient despite the steep drop in growth. However, the Fed plans on mitigating inflation through increasing unemployment. 'Beyond maximum employment' is pinkies up speech for - 'we are coming for your job'. One way to slash demand is for folks to lose their employment eh?
Soft Landing is months old talking points now as Jerome Powell states 'The sacrifice is slower growth in the future'.
For being so powerful & influential it is shocking to realize how poorly the Fed is keeping a pulse on inflation. I suspect the worse of inflation is behind us, and over the next three months we may see inflation back under the 5% level.
When it comes to inflation remember the formula: MV=PQ
Based on this equation, holding the money velocity constant, if the money supply (M) increases at a faster rate than real economic output (Q), the price level (P) must increase to make up the difference. Velocity has remained constant to now offset the increase in money supply and even lead to deflation instead of inflation.
This is coupled with demand dropping as supply shocks have now been better absorbed.
When the market beings to price in a pause in the Federal Funds Rate - this could be a catalysts for buying the bottom in risk assets such as equites & crypto.
In all this volatility! Trade safe mates!
For being such an unpopular opinion - it is oddly evident almost anywhere you care to look:
- Freight Rates have dropped 8.2% y/y https://www.dat.com/trendlines
- The largest drop on the ISM Manufacturing PMI Report is in prices (Aug 52.5 vs Jul 60 -7.5% Change) https://www.ismworld.org/globalassets/pub/research-and-surveys/rob/pmi/rob202209pmi.pdf
- Oil - opened the year at $76 Annual % Change currently 4.69%! (USOIL Currently Trading at $79.30)
- Gold - Treasuries are an easy swap with these yields... US02Y - 4.212% !
- NAHB Housing Index Down Sharply https://blog.itreconomics.com/blog/whats-up-with-housing
Unemployment has been resilient despite the steep drop in growth. However, the Fed plans on mitigating inflation through increasing unemployment. 'Beyond maximum employment' is pinkies up speech for - 'we are coming for your job'. One way to slash demand is for folks to lose their employment eh?
Soft Landing is months old talking points now as Jerome Powell states 'The sacrifice is slower growth in the future'.
For being so powerful & influential it is shocking to realize how poorly the Fed is keeping a pulse on inflation. I suspect the worse of inflation is behind us, and over the next three months we may see inflation back under the 5% level.
When it comes to inflation remember the formula: MV=PQ
- M stands for money.
- V stands for the velocity of money (or the rate at which people spend money).
- P stands for the general price level.
- Q stands for the quantity of goods and services produced.
Based on this equation, holding the money velocity constant, if the money supply (M) increases at a faster rate than real economic output (Q), the price level (P) must increase to make up the difference. Velocity has remained constant to now offset the increase in money supply and even lead to deflation instead of inflation.
This is coupled with demand dropping as supply shocks have now been better absorbed.
When the market beings to price in a pause in the Federal Funds Rate - this could be a catalysts for buying the bottom in risk assets such as equites & crypto.
In all this volatility! Trade safe mates!
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