Newsworthy Topics — Inflation: Everything You Need to Know

  • What is the current state of inflation?
  • What areas of the economy are being most impacted?
  • What areas of the financial markets are being most impacted?
  • Where do prices head from here?
It feels like you cannot have a conversation these days without discussing inflation – prices at the pump, the grocery store, construction costs – it is a very long list and rising prices are touching all our daily lives. Inflation is not only top of mind for individuals, but also for Central Bankers looking to keep the economy on a sustainable growth path. To be certain, the Federal Reserve (Fed) has shifted its focus from full employment (growth) to price stability (inflation). Is the Fed now willing to roll the dice on economic growth to ensure lower inflation? Have the chances of a recession increased? These questions have become increasingly appropriate, in our view.
 
Bottom line: We believe a “soft landing” scenario for the economy is still possible.  Because we think inflation may have peaked, the Fed will be able to justify a slower pace of monetary tightening later in the year.  This will result in a mid-cycle economic slowdown, but not a severe recession.  Should inflation remain stubbornly high, the Fed will have no choice but to hike rates until something breaks – either the economy, the stock market, or both.

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