That’s not how inflation works, but I’m sure you know that.
The staggering inflation of the late seventies through ‘82 didn’t get erased when Volcker’s rate hikes finally stemmed it.
But a rate reversal did wonders for business spending and consumer sentiment.
Obviously, it’s still too early to declare inflation dead (or even within the Fed’s 2% target area,) but we’re at least seeing some signs that it’s slowing down.
Yesterday UBS strategists published expectations that the benchmark federal funds rate (now 5.5%) will to fall to between 2.5% and 2.75% by the end of 2024, and see a terminal rate of 1.25% by early 2025. If true that’d be massively bullish for the economy.
Today’s 88 point S&P rally shows that at least for today Mr. Market wants to believe.
Inflation is fairly predictable.
There is a six month to one year lag between government deficits and future inflation as price increases work their way through the economy (including labor).
Since government deficits continue unabated and are actually increasing it does not take a genius to figure out what the next few years of inflation will look like....
The current happy talk is the calm before the storm.