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The headline CPI reading of no price inflation (0.0%) in October surprised the financial markets (but not us). It caused a bond market rally as yields (especially on the long end) fell. Then the PPI (Producer Price Index) showed up with a negative number for October (-0.5%), and this is generally a harbinger of what is to come in future CPI readings.SF Fed Inflation ForecastsHaver Analytics, BLS, Rosenberg Research
Economists agree that monetary policy acts with a long and variable lag – most think at least a year. If this is the case, then the recent rate hikes will continue to put downward pressure on economic activity well into 2024, at a time when that activity is already visibly slowing.
In our view, it is likely that we have exited this inflation cycle and may be headed for a bout of deflation unless the Fed acts soon to lower rates. The odds of that, at this time, appear miniscule, as Fed Board members have recently made clear in public pronouncements …
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