Imagine my surprise when seeing this sign outside my local JP Licks Ice cream store in the Boston area. While certainly anecdotal, it still seems to be a manifestation of the problem the Fed now faces in their quest to bring inflation back to 2%. The service economy is booming, the labor market is tight, and core inflation measures have begun to creep back up. In my January 3rd column (The Monkees Were A Big Hit In 1966-67. So Was Inflation (forbes.com)) my bottom line was that recession was not obvious, and therefore you should cover your equity hedges. It was a good idea then. Should we expect a recession anytime soon? Let’s explore the macro-outlook.
In preview, it’s difficult to see a hard landing recession in the next 6-9 months. Just recently, the 2-year note yield moved back above the level of Fed Funds. It ‘uninverted’. This is not unprecedented but what it likely means is that the economy is stronger than anticipated. And there are plenty of signs like private sector labor income up at 8% (3-month annualized) and accelerating. So, we end up with $23/hr ice cream scoopers. And we ice cream eaters are content to pay because household cash on balance sheets is still about $8 trillion, more than double what it was in 2019. Elsewhere, China is growing again, and the Bank of Japan is still printing trillions of Yen to support their Yield Curve Control. You get the picture; nominal growth is still strong.
Support authors and subscribe to content
This is premium stuff. Subscribe to read the entire article.