Hi guys, today I bring you an important point for macro analysis.
Many believe that seeing a significant improvement in economic data, especially those linked to inflation, showing that it is slowing down is something positive, is it really?
In a way, it's a positive metric when looked at in isolation, because inflation brings major disturbances to the economy, but that's a topic for another post.
What matters is that the mere fact that inflation has marked a possible peak and the Fed has started to reduce interest rates does not mean that we are going to have a bottom in the market!
Currently big banks are warning about the recession, and this for us, is not news, but look at this headline: "Jamie Dimon, CEO of JPMorgan Chase, talks of recession next year"
But here we had already been talking about this recession for some time, after publishing a study talking about the inversion of the yield curve, in that study there was the following sentence: "According to the data available on the Federal Reserve website, the inversion of the yield curve preceded all American recessions since 1950, with the exception of a false signal in 1967."
This publication was made on the
So, yes, we have a contracted recession, but what does that have to do with peak inflation?
Inflation brings, as a consequence, a scenario of uncertainties in the economy, and discourages new investments from being carried out. In practice, this causes difficulties for the country's economic growth, and once we have this combined with high interest rates, growth becomes even more difficult.
So, even though inflation has reached its peak, interest rates are still very high, and we continue to struggle with economic growth and this usually happens, see the chart, after inflation peaks we had big drops.
I just really can't believe that there's a large portion of people that think we already bottomed when this is the worst our monetary policy has been in almost half a century. "no big deal....new ath 2023". They dont even understand the implications of high inflation and thats apparent. I have lost faith in humanity for real.
sparo
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@Santwig, You could also argue that this is the 'best' monetary policy has been in three decades. We've been recklessly accommodative for 30 years (since Greenspan) and now are in an overleveraged "everything bubble". Normalizing interest rates isn't bad because these aren't even historically normal rates. 30 years of economic kick-the-can has lead to a bizarro world of distortion and leveraged wealth. There have been good things from this of course, but a pronounced correction will help to clean things up. Included in the clean-up is the idea that markets (and real estate and crypto and on and on and on) just magically re-inflate and everyone gets rich.
Alsander
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@sparo, Ugh, I really don't want that last sentence to be true but my gut tells me you're right.
leandrosander_
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@Santwig, Really, most people who are in the market today, do not understand basic concepts well, but do not lose hope... the hope it must be the last to die, and then we will reach the bottom of the market.
leandrosander_
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@sparo, That we are living in a bubble of all things, IMO is true.