TYO - It's A Moderate-Growth Disinflationary World
2024-02-06 07:05:00 ET
Summary
- The US economy is ok - credit spreads are still quite low, liquidity is still abundant, the dollar is still strong, inflation is still declining, and there are only a few indicators that suggest caution.
- Owning short-term risk-free assets today has become a very attractive proposition thanks to relatively high real rates.
- Commodity prices do appear to be in a downward trend, following the stronger dollar, and that will reinforce the disinflationary pressures of the Fed's reluctance to cut rates.
In my economic slowdown post a month ago, I was generally upbeat, but I worried about the slowdown in job creation. Those worries faded with a strong January jobs number. The US economy is ok: credit spreads are still quite low, liquidity is still abundant, the dollar is still strong, inflation is still declining, and there are only a few indicators that suggest caution. Meanwhile, the Fed seems unduly concerned about the economy's strength (they now say they will have to wait at least several months before cutting rates), but that is nothing new. Keeping rates higher than necessary for a few months more than is necessary is not exactly a death knell for the economy. In the end, the Fed should know better: more people working means more demand for a money supply that is flat, and that is disinflationary....
It's A Moderate-Growth, Disinflationary World