Last week’s policy shift from the Fed brings uncertainty about the future of inflation, which has lingered below the Fed’s 2% target since 2012. Weak inflation is partially attributable to a dramatic decrease to the velocity of money, which has only slowed further since the onset of the Covid-19 crisis. Meanwhile, the manufacturing recovery continues as the sector closes out its third consecutive month of expansion, though increased production has not yet sparked a commensurate rise in hiring. Finally, we’re keeping an eye on EM, global markets, and the beleaguered U.S. agricultural sector, where the sinking USD could potentially spark some long-awaited movement.
1. Long-term inflation expectations continue to creep higher. The new Fed policy of 2% average inflation means that the Fed will allow higher than 2% inflation to “make up” for years of sub-2% inflation. With trillions of new debt and record federal deficits, will this scenario allow inflation to overheat? Sorry, I’m a child of the 1970’s…
Source: The Daily Shot, from 9/1/20
2. One culprit to the low inflation is the velocity of money, or the rate and speed money is exchanged in the economy. The M2 velocity is currently 1/2 the rate of the 1990’s…
Source: The Daily Shot, from 9/1/20
3. Is this encouraging print due to pent up demand or is the housing rally and other economic activity really on track?
Source: The Daily Shot, from 9/2/20
4. Another regional Fed report showing “all is well”…
Source: The Daily Shot, from 9/2/20
5. Manufacturing employers are taking a cautious approach…
Source: The Daily Shot, from 9/2/20
6. Depending on the industry, some jobs are just going to be lost…
Source: The Daily Shot, from 9/2/20
7. The markets continue with the “one-man band”…
Source: The Daily Shot, from 9/2/20
8. Will the US Dollar’s decline finally give EM and DM markets a long-awaited tail wind?
Source: Haver Analytics, Federal Reserve Board, Goldman Sachs, from 9/1/20
9. Will the weaker dollar finally give U.S. farmers a break?
Source: The Daily Shot, from 9/2/20
10. Europe’s CPI has turned back to deflation…
Source: The Daily Shot, from 9/2/20
11. Inflation is muted in Europe and some other major economies. Imported inflation does not seem to be a current issue
Source: Eurostat, Bloomberg Survey of Economics, as of 7/31/20
12. This year the federal government is going to create new debt of almost $12,000 for every man, woman and child in the U.S.
Source: Manhattan Institute, as of 1/2020