Opinion | Money Eagle’s upcoming fury

Inflation in the US may have peaked.

I realized that by saying I risked being recognized as the boy who yelled “no wolves”. Last year I called inflation wrong. Much of the current inflation reflects huge price increases in sectors distorted by the pandemic or recently strongly affected by Russia’s invasion of Ukraine, but attempts to factor out these particular factors are also on the rise at this time, suggesting that the U.S. economy as a whole is overheating:

But the economy may be cooling as the Fed’s monetary tightening policy gains traction. And the news flow about inflation has changed its nature. Almost every report on prices has been surprisingly up for most of the past year. Many (though not all) reports these days are surprisingly downside.Measures that attempt to measure underlying inflation, such as the “core” consumption deflator Posted this morningalthough not all, but most are drifting.

Also, there was no hint in the data that inflation was becoming entrenched. Consumers expect a lot of inflation in the short term, but less in the medium term:

Workers expect a pay rise of only about 3% next year, slightly higher than historical standards:

The market has taken note of relatively positive news on the inflation front. By looking at the “breakeven rate,” we can more or less directly calculate the market’s expectation of inflation, the spread between ordinary U.S. bonds and bonds indexed to protect investors from inflation. In the past month or two, breakeven rates have fallen a lot:

Fed officials have also taken note. However, they are still a long way from declaring victory and going home: rate hikes are still very much on the agenda.but some officials are talking possible suspension A few months later, depending on what the data showed at the time.

Currency hawks are outraged. A few days ago, billionaire investor Bill Ackman drew a lot of attention in a tweet announcing that the market was collapsing because investors didn’t believe the Fed would live up to its mandate:

While we’re not sure whether inflation itself is under control, Ackman’s claim that “inflation expectations are out of control” is clearly false, given the market and survey data. But many others are echoing his blistering attacks on central banks, as you just search for “Fed behind the curve. “

So what’s going on here?To understand the current inflation theory, you need to know that there are a large number of economic commentators always Believe the Fed is printing too much money. They believed it in the depths of the Great Depression. They believed it after the 2008 global financial crisis.

I think the root cause of the perpetual currency hawks is politics – the fear that the flexible use of printing opportunities gives too much room to big government, or maybe because printing money will deprive them of their hard-earned wealth. Hey, motivated reasoning can happen to anyone. It definitely happened to me, even though I tried to fight it and admit it when I was wrong.

So how will the perpetual hawks react to the inflation surge in 2021-22? With serious concern, of course. But you don’t have to do much reading between the lines to find out that this time their doomsday proclamation is finally coming true.

Some of them were clearly outraged at any suggestion that doom might be limited in scope. They’ve spent years, if not decades, preparing to celebrate — I mean lament — stagflation.Although, as I Written last weekwe are likely to be in for a brief period of high(ish) inflation and rising unemployment, which may not be the stagflation they are looking for.

So let me make a conditional prediction. If inflation does fall, for example, Congressional Budget Office Expect the number of dire warnings about runaway inflation to actually increase, at least for a while. The good news is that this wave of doom may be, well, temporary.


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