AFMC - The Market Has Lost Control Of The Inflation Narrative
2024-02-16 13:11:48 ET
Summary
- Inflation swaps suggest that headline CPI will rise toward 3.2% in April and remain at 3% in May.
- Financial conditions and contracting spreads have allowed inflation and the economy to reaccelerate.
- The bond market is willing to take on extra risk without demanding a bigger risk premium, potentially due to supply issues or expectations of lower risk-free rates.
The market has created a giant mess, and now it must correct its error. The mistake was brought on by a herd-like mentality that inflation would melt away in a linear path just like it did when it rose. The truth is that inflation fell quickly from very high levels due to the sharp decline in energy prices and goods. But inflation, for the most part, has been moving sideways since June 2023 on headline CPI....
The Market Has Lost Control Of The Inflation Narrative