Main Topic: The current state of inflation and its impact on prices
Key Points:
1. Price increases have started to decrease from the highs experienced during the pandemic.
2. Some goods and services have steadily increased in price over the course of the pandemic.
3. The U.S. is unlikely to return to pre-pandemic price levels in the near future.
The article criticizes economists and their understanding of inflation, arguing that their focus on controlling wages and putting workers out of jobs to curb inflation is flawed, and that the real issue lies in the lack of competition and the pricing power of big businesses.
The blog emphasizes that the war on inflation has been won and that a recession is coming, as indicated by various indicators such as CPI, recession probabilities, freight industry performance, and weak retail sales. The post also highlights the struggles in China's economy and suggests that investors should buy bonds.
Inflation is causing a decline in affordability for average working individuals, with prices on everyday necessities such as groceries, gasoline, and housing rising significantly in the past two years due to government spending and the Fed's money-printing.
Federal Reserve Chair Jerome Powell warned that the fight against inflation still has a long way to go, emphasizing the need for extended periods of elevated interest rates to restore price stability. Powell stated that although inflation has cooled, the improvement may be temporary, and the Fed is committed to lowering inflation to their 2% target.
BlackRock's Rick Rieder suggests that the Federal Reserve can now end its inflation fight as the labor market in the US is cooling down after gaining 26 million jobs in the past three years.
The Federal Reserve's attempt to combat inflation is not making any progress, as shown by the latest jobs report and inflation data, indicating that inflation is likely to worsen.
US inflation remains too high despite recent improvements, according to Federal Reserve Bank of Cleveland President Loretta Mester, who also states that the labor market is still strong.
British finance minister Jeremy Hunt has stated that inflation is expected to halve by the end of 2023, with the goal of easing pressure on household budgets and increasing productivity, as the government aims to boost optimism about the economy ahead of the expected elections next year.
The U.S. is currently experiencing a prolonged high inflation cycle that is causing significant damage to the purchasing power of the currency, and the recent lower inflation rate is misleading as it ignores the accumulated harm; in order to combat this cycle, the Federal Reserve needs to raise interest rates higher than the inflation rate and reverse its bond purchases.
Inflation has decreased significantly in recent months, but the role of the Federal Reserve in this decline is questionable as there is little evidence to suggest that higher interest rates led to lower prices and curtailed demand or employment. Other factors such as falling energy prices and the healing of disrupted supply chains appear to have had a larger impact on slowing inflation.
Economists at the Chicago Fed argue that recent rate increases have brought inflation on a path to 2% without causing a recession, creating a "goldilocks" scenario for risk-taking in financial markets.
The author suggests that the ongoing macro trend of Goldilocks (inflation not too hot or cold) will soon come to an end and identifies three potential scenarios for the future: deflation, stagflation, or a crack-up boom.
The era of infrequent recessions may be coming to an end, as economists predict that boom-and-bust cycles will become the norm again due to growing national debts and inflationary pressures.
The Federal Reserve's measure of inflation is disconnected from market conditions, increasing the likelihood of a recession, according to Duke University finance professor Campbell Harvey. If the central bank continues to raise interest rates based on this flawed inflation gauge, the severity of the economic downturn could worsen.
Inflation is expected to rebound in 2024 due to a mismatch between supply and demand created by the shift from services to goods during the pandemic, as well as a chronic shortage of workers, according to BlackRock strategists. This could lead to higher interest rates and a higher risk of recession.
The inflation news is being replaced by recession news, leading to a decline in profits and job loss, but wage growth and corporate profits remain strong, suggesting a soft landing and potential rotation into average stocks.
The moderating U.S. inflation pressure is helping gold prices hold steady, but it is not providing much new bullish momentum.
A growing amount of data indicates that a significant economic crisis, comparable to the Great Depression, could occur if government spending is not reduced to combat inflation.
U.S. Federal Reserve Governor Michelle Bowman believes that inflation is still too high and that the central bank may need to tighten monetary policy further to reach their 2 percent inflation goal in a timely manner.
Inflation expectations could become unanchored, similar to the 1970s stagflation era, due to geopolitical risks, including the recent attacks on Israel by Hamas, rising oil prices, and above-target inflation across major economies, according to Deutsche Bank.
The article discusses the fear of a wage-price spiral and warns that if inflation is allowed to linger, it could lead to a cycle of increasing wages and prices, resulting in high inflation and a severe recession, as seen in the late 1970s and early 1980s.
The U.S. government's upcoming inflation report is expected to show a cooling off of inflation, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, and core inflation expected to be up 4.1% from September last year, indicating slower price increases in September than in August.
The upcoming monthly inflation report is expected to show that inflation in the US is cooling off, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, indicating slower price increases in September than in August. However, if the report reveals that inflation remained higher than expected, especially in core areas, it may prompt the Federal Reserve to raise interest rates again, further slowing the economy.