If the “land the inflation airplane” graphic (originally pictured in October 2022) indicated a US Federal Reserve trying to “land” inflation, then the current graphic would look like a slowly unfolding aborted airplane landing.
To summarize, prices of a number of key consumer items are NOT coming down fast enough to lower inflation in a meaningful way – even if the media has convinced Americans that $5 or $7 for a dozen eggs is “a relief”.
In addition, wages, a key component of consumer prices, are not leveling out and have only continued to increase. Just this week, small companies – which is where economic growth is born – reported RAISING wages*. Higher wages increase prices of products manufactured or services sold, regardless of whether higher wages are warranted. (Wages have been increasing at often alarming rates for employers since before 2022 but not keeping pace with inflation… in a negative “chicken or egg” economic scenario.)
The yield on the 10-year US Treasury Note has gone meaningfully UP since January, meaning that a key barometer of inflation expectations thinks that inflation is NOT going down soon.
What does all of this mean to savers and investors? Inflation not going down meaningfully means interest rates most likely stay higher for longer. It is arguable how much inflation has gone down, so it may take longer for the US Federal Reserve to act on lowing interest rates. And then there is the small issue of politics nationally and in “swing states”, plus a major US election later in the year. Signals on inflation and interest rates will continue to be mixed. Stay tuned.
*National Federation of Independent Businesses (NFIB) March 2024 Survey.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.