Yesterday I illustrated how the “inflation has peaked” narrative is a myth.
By quick way of review:
- The only inflationary data that has dropped is in the energy space (that and used cars).
- The only reason energy prices have dropped is because A) China was in lockdown for Zero Covid and B) the Biden administration dumped 250 million barrels of oil onto the market.
- Both A) and B) are over. China has reopened and the Biden admin has already depleted the U.S.’s emergency stash of oil by 40%.
- The markets are confirming this, with both oil and gasoline prices bottoming in the last two months.
Today we’re talking about another type of inflation: asset price inflation, specifically financial conditions.
Fed Chair Jerome Powell has stated multiple times (most recently on December 14th 2022) that the Fed focuses on financial conditions.
See for yourself.
With that in mind, it’s worth noting that financial conditions are now the easiest they’ve been in nearly a year. To put that into perspective, it means financial conditions are back to where they were BEFORE the Fed ended QE and began raising interest rates.
Anyone who thinks the Fed won’t notice this is out of his or her mind. And it only confirms that inflation is not gone in any meaningful way. If anything, we’re in the midst of a resurgence courtesy of energy prices and investors pouring into stocks again.