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The Ghosts of Inflation Past and Future Have Become Less Frightening

My favorite Christmas movie of all time is “It’s A Wonderful Life” (I cry every time Harry Bailey raises a glass and toasts “To my big brother George, the richest man in town.”). That said, there are any number of classic Christmas films to choose from when picking a favorite, including “A Christmas Carol” (the original movie was released in 1938; the Charles Dickens’ novella has been reimagined for the big screen and small screen more than a few times since). So, in the spirit of the season, and “A Christmas Carol,” we bring you this week’s Weekly Wire and the issue that has haunted markets more than any this year – inflation (and while we are having a bit of fun this week, we don’t mean to make light of the financial pain caused by a year that has seen US equities sell off 19%).

Inflation has been such a headwind because its level and persistence have been catalysts for the US Federal Reserve to raise interest rates at an unprecedented pace – consider that on January 1st, the Fed Funds Rate sat between 0% and 0.25%; today the Fed Funds Rate sits between 4.25% and 4.50%. And we have reached a point where many investors – and we think rightly so – are worried the Fed will go too far on the rate hiking front and push the economy into a meaningful recession. We think it is fortunate the Fed won’t meet again until January 31st, as we expect key inflation data to trend lower between now and then.

Which brings us back to the ghosts of inflation past and future – as it concerns the former, the November Consumer Price Index came in at 7.1%, it’s lowest reading since December of 2021; as it concerns the latter, the November one-year ahead consumer inflation expectations survey from the New York Fed came in at 5.2%, it’s lowest reading since August of 2021 (see chart). With inflation coming down, we are hopeful the Fed can stop playing Scrooge sooner than it thinks and pivot to a more benign interest rate policy footing, which would be a substantial positive for markets. And we want to wish you and your loved ones, Happy Holidays and a Happy New Year!!!

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 2454-BCI-12/19/2022

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