Last week the two most prominent measures of inflation were reported and the CPI’s surprise was its 5.0% reading which was below the expectations for 5.2%. This represented a 100 basis point drop for the month, the largest one month drop since April 2021.
Likewise, PPI reported inflation at 2.7% vs. expectations of 3.0%, and its biggest drop (220 basis points) since peaking in 2022.
In this week’s Market Outlook, we dive into why this data doesn’t suggest that the Fed no longer has to worry about inflation.
On the surface, CPI still continued its streak of 23 months over 5%, and prior month PPI data was revised upward.
**************
Stay One Step Ahead of The Markets With Market Outlook
Every week you’ll gain actionable investment insights through unique, concise analysis of the most important themes driving the market trends, so you’ll stay on top of the news and ahead of the markets. Click here to get it weekly
**************
The Fed also released the minutes from their March meetings which resulted in an additional hike of 0.25% (25 basis points). Here is the summary of those minutes:
- Fed officials lowered target interest rates due to the banking crisis.
- Several Fed officials considered pausing rates in March.
- Fed projects a “mild recession” starting in 2023.
- All officials backed 25 bps hike in March.
- The US Government ran a $378 billion deficit in March.
(In March 2022, the deficit was $193 billion, now up 95%. The YTD deficit is at $1.1 trillion, up 65% since last year. Meanwhile, the debt ceiling has still not been raised. If it is not raised by July, the US will begin to default?
The Federal Reserve was late in raising rates. Here is a reminder of what they said in 2021:
January 2021: Inflation is transitory, recession won’t happen.
May 2021: Recession is unlikely.
December 2021: inflation is not transitory, but recession won’t happen.
May 2022: Recession may be needed to lower inflation.
December 2022: Disinflation started, no recession.
NOW: “Mild recession” to begin in 2023
Is “mild recession the new inflation is transitory?
Guess what? The Fed has been successfully attacking inflation. However, I think they realize that they may have broken “something.”
The deficits are exorbitant, and they are now predicting a “mild recession,” which may mean anything from a soft to a very hard landing.
Click here to continue reading the analysis of which areas of economy and markets are diving and which are thriving and how you can navigate your investments to safely grow in this environment.
If you would like personal guidance and hands-on management of your assets with the assistance of tactical, risk managed, strategies, please contact me at donn@mgamllc.com or Keith at keith@mgamllc.com.
