Milton Friedman used to say that inflation is made in Washington, referring to the fact that when government spending goes crazy (please read budget deficits, QE, money printing) the result is an increase in the amount of money in circulation (monetary base) for the same amount of goods, debasing the currency, “pushing” prices up. Perhaps the creation of money is going to move from Washington to Beijing, but as you can see below, global money supply is going up almost vertically. Coincidentally, US CPI was published yesterday, and it was slightly higher than expected, at 2.4% YoY. One tenth of a percent above expectations was enough for some Fed governors to state that the Fed might skip November when it comes to lowering rates. As of last week, there was a 25% probability of lowering rates in November by 50 bps. That’s zero now. And the odds of “no move” have gone from zero to 20%. The path to lower rates may not be a straight line.
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