3-minute read
I don’t know why the White House is blaming inflation on Putin. I found the real culprit!
Jeez, we’re at this point of the cycle, eh?
I was cool with being blamed for the death of bar soap and the emergence of names ending in “-ayden”, but this is a bridge too far!
I can’t stand for that either. But I hate reality more…
That we can all agree on. We’ve all seen the figures by now, the 1981 headlines, the local news interviews outside gas stations, etc. It’s rough.
When will it end?! Is the Fed powerless?!
The Fed has one blunt tool to bring down inflation: raise interest rates. The mechanics between the central bank and the commercial banks can be complicated, but the theory revolves around money supply.
Go on…
Personal loans become more expensive when interest rates rise. The more money spent on interest payments (e.g., mortgages), the less to spend on other things. Less spending makes companies more hesitant to raise prices.
That makes sense.
Businesses also find it more costly to raise funds and invest in their growth. Fewer jobs and less wages create lower spending and a drop in consumer confidence.
Theories are great, but theoretically Johnny Manziel was the next Steve Young. Theories can blow up quicker than my toddler son when dinner is two minutes late.
You’re right. It’s not that easy, especially when you consider circumstances outside of their control like the war in Ukraine and ongoing supply chain issues.
So you’ll be writing this same blog post in 2024?
I really hope not. Check out this chart from Bloomberg regarding commodity prices:
Interesting, so potentially some relief down the road?
Though the relationship has been debated, commodity prices are seen by some as a leading indicator of inflation. Meaning, if you see lower commodity prices, we could be seeing lower inflation at some point.
At some point?! Yeah, I would hope so.
I wish I could tell you the timing but few people can. Here’s another thing to keep an eye on:
Are you sure this isn’t a satire? I see more ‘Help Wanted’ signs in my neighborhood than street signs.
You are correct about that. We still have close to 2 job openings for every unemployed person. But layoffs are starting to be publicized.
Where exactly?
A fair amount in tech (Netflix, Meta, Tesla), some in finance (JP Morgan), and potential looming cuts at major retailers (Amazon, Walmart). While no one roots for layoffs, this shows possibly a reduced ability of workers to demand wage increases and hiring bonuses.
Yet the unemployment rate stands at 3.6% - an extremely low figure.
Absolutely. The labor market has ways to go before any alarm bells are rung.
So you’ll still be writing this blog post in 2024?
Once again, I can’t forecast anything. I do know, however, that our inflation problem won’t be solved in a matter of weeks. Our friends at Strategas point out that we will need eight consecutive months of 0% change in the inflation rate to get us to 5%.
Isn’t the Fed’s ideal inflation rate 2%...?
Exactly. As is true about the stock market, patience is required.