AFMC - Tight Money Hasn't Hurt Corporate Profits
2024-06-05 03:40:00 ET
Summary
- Currency in circulation grew at a fairly steady pace of 6.6% per year from 2010 through 2019. It then exploded upward in the wake of the massive Covid stimulus spending.
- Tight inflation has fallen, real yields are relatively high, and interest-sensitive sectors of the economy (such as housing) are suffering.
- The only significant source of inflation is in the services area, which is dominated by wages. It's not unusual for wages to lag price increases in other sectors.
The market tries, but just can't shake its Phillips Curve instincts, which is why any news that is considered to increase the likelihood of interest rates being "higher for longer" is deemed bad for the economy and bad for stocks, and vice versa . It's not surprising that this is so, since decades of experience have taught the market that recessions reliably follow periods of tight monetary policy. ("Tight" being defined, traditionally, as high and rising real interest rates, and a flat to inverted yield curve, and a strong currency. I've maintained for many years, however, that a better definition of tight money would include high and rising credit spreads.)...
Tight Money Hasn't Hurt Corporate Profits