Is Fed making the same error as the mid 1970s?
In the 1970s they also thought they had beat inflation in 1974-1975, they lowered rates and then inflation roared back to even higher levels in the late 1970s. Inflation on came down in early 1980s because of two factors. 1) massive new oil (energy) supply from Alaska, Gulf of Mexico, North Sea and huge new fields in Mexico coming online. 2) 18% interest rates crushed the economy. Source: Wall Street Silver
Up the mountain and back down in the valley
Here's a look at the year-over-year percentage change of PPI (producer prices) ex food & energy over the last five years. Core PPI is back down to 2% for the first time since January 2021 after topping out at 9.7% in March 2022. Source: Bespoke
US CPI has moved down from a peak of 9.1% in June 2022 to 3.1% today
What's driving that decline? Lower rates of inflation in Fuel Oil, Gas Utilities, Gasoline, Used Cars, Medical Care, Apparel, New Cars, Food at Home, Electricity, and Food away from Home. Shelter and Transportation are the only major components that have a higher inflation rate today than June 2022. Source: Charlie Bilello
Each time inflation in China turned negative the global economy was in a recession: 2001, 2008-09, 2020... Is this time different?
Source: Jeffrey Kleintop, Bloomberg
GOLD remains 20% below the 1980 peak inflation adjusted
Source: DB, Win Smart
Over the last 30 years, the purchasing power of the US consumer dollar has been cut in half due to inflation
At the same time, the S&P 500 has gained 764% (>7% per year) after adjusting for inflation. Source: Charlie Bilello
The Fed's preferred measure of inflation (Core PCE) moved down to 3.5% in October, the lowest since April 2021
The Fed Funds Rate is now 1.8% above Core PCE, the most restrictive monetary policy we've seen since 2007. Source: Charlie Bilello
Eurozone inflation cooled more than expected, putting 2% target in sight:
Headline CPI rose 2.4% YoY in November down from 2.9% in October. Core CPI, which excludes volatile components like fuel & food, moderated for a 4th month to 3.6% from 4.2% in October. Markets are now pricing 1st ECB rate cut to take place at the April meeting. Source: HolgerZ, Bloomberg
