Florian, I think you did an admirable job highlighting the reasons that inflation is unlikely to continue to decline as the bulls/doves currently believe. while timing is everything in life, it is very clear that Yellen and probably Powell, will do all they think they can to help Biden get reelected, and if they believe that means cutting rates, they will do so. but it is much harder to accept that housing prices are falling, at least based on the anecdotal evidence I see directly in the Northeast. My take remains that the fed funds futures markets are not actually expecting 5 or 6 cuts, they are pricing either 0-1 cuts as inflation reaccelerates, or 250-300bps of cuts if the bottom falls out. in the latter case, I don't see risk assets performing well. in the former, I suspect they may struggle too.
Interesting perspective. I’m cautiously on the other side of the equation, in that inflation has trended down enough for them to start cutting. The 3&6 month annualized inflation prints are looking good.
Furthermore, the US fiscal situation is a total mess. They NEED inflation to get them out of the massive debt to GDP hole. Other options are much worse. Inflation running hot (especially in asset prices, CPI can be gamed/goalseeked lower, as it has been in the past) is likely. Long risk assets?
Florian, I think you did an admirable job highlighting the reasons that inflation is unlikely to continue to decline as the bulls/doves currently believe. while timing is everything in life, it is very clear that Yellen and probably Powell, will do all they think they can to help Biden get reelected, and if they believe that means cutting rates, they will do so. but it is much harder to accept that housing prices are falling, at least based on the anecdotal evidence I see directly in the Northeast. My take remains that the fed funds futures markets are not actually expecting 5 or 6 cuts, they are pricing either 0-1 cuts as inflation reaccelerates, or 250-300bps of cuts if the bottom falls out. in the latter case, I don't see risk assets performing well. in the former, I suspect they may struggle too.
Interesting perspective. I’m cautiously on the other side of the equation, in that inflation has trended down enough for them to start cutting. The 3&6 month annualized inflation prints are looking good.
Furthermore, the US fiscal situation is a total mess. They NEED inflation to get them out of the massive debt to GDP hole. Other options are much worse. Inflation running hot (especially in asset prices, CPI can be gamed/goalseeked lower, as it has been in the past) is likely. Long risk assets?
thanks for what you are doing Florian
Great as always Florian. Cheers!
Very interesting, thanks for sharing!
Really enjoy reading these, thank you!
The mild reaction to the soft PCE last week would suggest the disinflation story is becoming fully priced in.
I’d suggest having a deeper look into the South Korean data, it looks like the pick up in exports is US led, presumably from the Biden’s EV policies.