Stocks are up sharply pre-market. Fed has all but declared another 50 basis point hike in this week's meeting.
Critics of the Fed a year ago said they were not vigilant enough on rate hikes to stop inflation. The SAME critics are now saying the Fed is looking at backward-looking data and that they are being too hawkish and therefore, might "break something".
The 50-point increase will happen this week but people will all be looking at the words coming out of Powell's mouth about what might be coming next.
Seasonally, stocks rally into year-end. Against that is P/E ratios will get stretched.
No strong opinion here but the trend is higher.
Market action today was mixed. It couldn't hold it's morning rip higher, but neither did it close lower.
inflation may look lower than a couple months ago. but... if you look at what people last couple years, and what people had predicted for this year, we are still way above all the projections. we have not cooled much.
i expect inflation next year will end up being higher than what people are projecting. same for 2024, 25 etc.
for the next 5 to 10 years, growth will be lower than expected, inflation will be higher than the fed target, and interest rates will be higher than expected. just my opinion. there has been way too much money supply created the last 2 years, and also the last decade.
Bear, how have your long-term predictions been working out over the decades? Mine,,,, not so well. All those predictions may very well come to pass. Wasn't Zero Interest Rate Policy from more than 10 years ago supposed to cause inflation (it didn't)? I think it is equally likely that the Fed overdoes it in its zeal to reestablish credibility on the inflation front and we have deflation a year from now. Rents and housing are already rolling over.
To me, the danger is not the money supply, whose spigot can be turned on and off, it is the inflation expectation that is dangerous. Once that genie is out of the bottle it is hard to put it back.
I've got my gold as a hedge, which may or may not protect me against inflation. It was actually the deflationary 1930s that gold mining stocks performed the best appreciating 10-fold over the decade.
here is why all that money printing 10 years ago did not cause a lot of inflation...
a few reasons really.
1- the big reason, it was mostly contained in the banking sector. the fed forced banks to hold much higher reserves to safegaurd against any more big liquidity problems. so yes, the fed and treasury printed like crazy, but a lot of that money did Not enter circulation.
2- commodity inflation goes in cycles. just because the govt prints 10% more money this year, does not mean that copper will rise 10% this year. sometimes the money goes elsewhere for a while. land? foreign trade? stocks?... but sooner or later, yes the price of a non-renewable resource will go up to reflect the money in circulation.
3- commodity prices already had a big run up in the iraq war. 2003-2011. so that means some sideways movement for awhile.
4- there was still inflation in other things. tuition, healthcare. the ACA funnelled money away from most other sectors of the economy and into healthcare. so for example, deductibles surged (another way of saying you had to pay more, but got less). premiums surged. i saw some premiums go up by 400-500% over the last 12 years. drug prices surged. by sisters thyroid meds (if you do Not have insurance) is up 1700% in 12 years. by daughters birth control pills (again if you do Not have insurance) is up about 400% in 12 years.
remember, obama told you that you Had to buy insurance, and told the insurance comp that they had to cover drug X, so the drug comp can just raise prices like crazy.
I agree with much of what you said there bear. Particularly asset prices, health care, and tuition. Although I think that a large part of the health care explosion is people living longer. According to a doctor I spoke with the majority of healthcare costs are spent in the last 2 years of life. (this was so true for my mom's care)
To your points, I would add the following. Productivity is a mitigating factor. Technology gains lesson inflation losses. For example, a toaster or a car that lasts 3 times as long and triples in price have not actually increased in real terms at all.
The sticky inflation today is labor. But we are in a different place in that area than in the 70s. We had high UE in the 70s and low UE currently. Also, unions are much weaker than they were back in the 70s. I'm not sure how that will all pan out but reports I've read suggest there are 10 million unfilled job openings. Immigration numbers collapsed in the xenophobic Trump administration and I don't see the political will to address the obvious solution. That would bring wage inflation under control.