It seems that everyone is an economist these days. Everyone I speak with has a strong opinion on the economy. Most are convinced things will get worse in the coming months and that inflation is here to going to crush them.
Yeah, inflation impacts how much money people can spend on everyday items. Inflation is the most lagging of all economic indicators, while changes in the central bank’s interest-rate policy can take as long as a year to have an impact on economic activity.
I’m not an economist and will never claim to be. Serious. Joining the party for a 3-minute fame, let me take a quick look at the official US inflation numbers for September minus all the details. While the headline number was a bit hotter than expected, core inflation was in line with expectations and the overall disinflation trend remains in place.
Headline was slightly above expectations at 3.7% versus 3.6% estimated. On the other hand, the core CPI inflation rate excluding food and energy, was in line with expectations at 4.1%. Why is the overall rate rising while core prices are still moving down? The spike in energy prices.
Inflation has been the Fed’s economic enemy number one for the last two years and Powell has made aggressive changes to the monetary policy in an attempt to bring inflation down toward its long-term target of just 2%. At the moment, investors are debating whether or not the Fed will need to raise interest rates at least one more time in its current tightening cycle.
The bulls on Wall Street are convinced that inflation is declining and interest rates are arguably restrictive enough at this point. On the other hand, the bears are warning that the threat of an inflation resurgence can’t be ignored. Earnings announcements will gain more traction in the days ahead and several big tech earnings are scheduled for the last week of October. If you are a trader, place your bets accordingly.