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This isn’t the inflation wave to be worried about โ€“ it’s the next one This isn’t the inflation wave to be worried about โ€“ it’s the next one

This isn’t the inflation wave to be worried about โ€“ it’s the next one

Fed aims to achieve 2% inflation target as stagflation looms and aggressive tightening cycles struggles to have impact on unemployment rates.

Quick Take

  • U.S. CPI inflation matched forecasts by most measures, but we are nowhere near done yet.
  • Contrarian views have done well this cycle, a recession hasn’t occurred, and we are most likely facing the possibility of stagflation.
  • The Fed has gone on the most aggressive tightening cycle in the past forty years, and core inflation is still around 5.5% โ€” which has not budged for an entire year, slightly down from 6%.
  • Core goods price inflation increased from 1.6% to 2.1%, while the monthly increase in core services CPI less shelter was up 0.3%.
  • Unemployment is still at historic lows at 3.4% โ€” which is not what the Fed wants to see. This will complicate their job in getting inflation to the 2% target.
  • A similar pattern this decade may likely be the 70s, where we had high inflation and elevated interest rates.
Core services CPI less shelter: (Source: MacroScope)
Core services CPI less shelter: (Source: MacroScope)
Unemployment Rate: (Source: FRED)
Unemployment Rate: (Source: FRED)
Core Inflation: (Source: Trading Economics)
Core Inflation: (Source: Trading Economics)