I’m not sure we agree that much. I don’t think the market is being manipulated, and while I do think Powell is going to stick to his cuts at least for now I am very uncertain on inflation. We tried this in the 70’s where the fed would lay off the brake thinking inflation is under control only to roar back. I think the fed is aware of that history, and is probably setting policy with that in mind.
Researcher has rightly pointed out a number of disinflationary items. Rents and home prices are in fact coming down and commodity prices are generally down or flat. It’s real, but will not show up fully in CPI due to the lagging nature of OER
The flip side of that is there is still a labor shortage especially on the services side which is inflationary, and services are the bulk of the economy. As I see it a big part of this is collapsing productivity. A lot of that labor shortage wouldn’t feel so short if productivity hasn’t been in utter collapse. The 4% drop last quarter is the equivalent of roughly 5 million jobs.
If productivity gets fixed, and they sop up a bunch of that money sloshing around the system inflation could be down considerably at some point next year. On the other hand the interest rate increases we have seen are not yet floating through the economy and GDP is already negative. Things could get ugly if we get falling earnings due to recessionary factors combined with multiple compression now that treasuries are an actual alternative.
There is plenty of reason to be cautious.
AI
