Financial Conditions Ease Sharply in November, Causing Dilemma for Federal Reserve's Inflation Fight
-
Financial conditions eased sharply in November, with stocks surging, yields falling, oil prices dropping, and the dollar weakening. This is the biggest monthly easing in decades.
-
Easier financial conditions historically benefit markets, but now the Fed sees tighter conditions as an ally against inflation.
-
If conditions keep easing, the Fed may not be able to cut rates as fast as markets expect. This could cause yields to rise and stocks to fall if the Fed pushes back.
-
Inflation pressures have eased substantially but could flare up again if growth reaccelerates. This could lead to rising wages and feed through to inflation.
-
It's too early to get complacent on inflation. If the labor market doesn't weaken enough, price pressures could easily move higher again.