Last week, the Personal Consumption Expenditure inflation was published in the US. It’s relevant because it is the preferred measure of inflation for the Fed. It came up better than expected but if you look at the chart below, and you exclude the orange line, which just smooths the inflation though the median, it would appear as if the index has bottomed a few months back and it may be starting a new regime. Still too early to tell, but if the blue and green lines separate further from 2%, the probability of a rate cut goes to zero. But the problem is not that simple: we don’t know if the next regime will be one of low growth and high inflation (stagflation) and what will happen to unemployment. Or perhaps the U.S. goes into recession and the inflation problem fixes itself. The key is debt and government spending. And that has little to do with the Fed. If the U.S. chooses austerity, growth will suffer, but inflation will fall. If the U.S. chooses stimuli, inflation will go up creating a second wave.
Want to know more? You can find all our posts at https://www.myfundamental.net/insights
#iamfundamental #soyfundamental #wealthmanagement #familyoffice #financialadvisor #financialplanning
Comments