Steve DiGioia

Months May Pass Before Inflation Declines. What That Implies For Investors Is As Follows


Traders anticipate five more months of consumer price index reports to show little further progress being made on the annual headline rate of U.S. inflation, following March’s startlingly high official jobs report. 

Personal Consumption Expenditure Index

In order to continue the current nine-month run of readings at or over 3%, it is anticipated that the rate will fall between 3.2% and 3.4%. This range will begin with the March data released on Wednesday and continue through the August release of the July CPI figures.

The personal-consumption-expenditures index, or PCE, is another measure that the Federal Reserve favours emphasising, but the CPI figures are significant because they affect household expectations.

“We still may not have any major asset-price depreciation,” said trader Gang Hu of New York hedge fund WinShore Capital Partners, “despite the risk that inflation might go higher from here and the expected lack of progress in the Federal Reserve’s efforts to bring inflation sustainably back to its 2% target.

Hu’s opinions are worth considering because during the last few years, he has made a number of prophetic statements.

Early in July of that year, Hu stated that it was likely the Fed would have to keep hiking rates from 5% to 5.25% since the markets were locked in a “self-defeating feedback loop” on inflation.

Predicted Inflation

Source: Yahoo finance

In less than three weeks, the Fed raised its target range for the fed funds rate by another quarter point, to 5.25%–5.5%, where it has stayed ever since.

The trader predicted that inflation “is going to be stickier than most people imagine” in July 2022, one year earlier. This prediction has now come true.

Hu now presents a case for why the financial markets and the US economy seem to be entering a new phase of the current inflation era, one in which prices for all major assets can rise even in the event that the Fed is unable to significantly slow price increases or begin lowering interest rates.

He reduces it to a confluence of other variables, such as a more pronounced contrast between American enterprises that have prospered and those that have not, and the $1.2 trillion in fiscal support that President Joe Biden signed into law in March.

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