In the previous article on inflation, the current inflation problem is not something to worry about. The probability of inflation being effectively controlled and gradually moderated is high, which means that the current market is at the end of the recession. The economy has gone through a complete cycle since the epidemic shock brought about the recession. And the next is a new recovery.
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The current inflation value of 7.1% is still far from the 2% target. But restrictive interest rates will not be the norm. With the conclusion of the December rate meeting, the path of future rate hikes is once again clear. The median dot plot is currently at 5.1% regarding the interest rate ceiling. That means there is room for a rate hike next year, with a probability of only 50 basis points. And it is likely to be raised in February and March. In addition, the impact of monetary policy on the economy needs to catch up. The decline in inflation data in December has exceeded market expectations. This means that by the end of this year and next year, when the rate hike is transmitted to the economy, inflation will decline even faster than in December. If you are optimistic, it is possible to see inflation data that is essentially flat with interest rates in March next year.
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The probability of the above conclusion is still relatively high when we combine the CPI (blue) and interest rate (yellow) curves from 2008 to date. Interest rates rarely rise above CPI; when they do, rate hikes stop, and rate cuts begin shortly after that. A meeting of the two is likely to occur in March next year.
The market is currently hesitant to price the future ahead. This is mainly because of the Fed's expectations management. When market sentiment lifts because of optimistic data, the Fed will put a hawk to warn the market. And when the data is relatively poor, it will appease the market as a way to achieve the market in general in a smooth operation. No matter how long or short it is, it is not overkilled. But expectations management is just a least-cost form of regulation and may need to be more accurate. Sometimes it needs to be understood the other way around. If the situation is not optimistic and continues to tighten sharply, wouldn't it be more appropriate to match the dovish expectations management?
In general, we are currently in a phase where a new cycle is about to begin. And the recovery to overheating, corresponding to a bull market. Recovery corresponds to a bull market wave. Prices are starting to move closer to value. The overheating phase accumulates bubbles, but the rise will also be more potent, corresponding to a bull market wave three. Currently, at the end of the recession. We can lay out the best assets to hold in the next phase ahead of time, which are stocks and commodities. Of course, crypto assets are also in the mix. (It should be noted that the analysis here is the United States, so stocks specifically refer to U.S. stocks)