Commentary on Inflation in Early February

Inflation started to cool, in large part due to historic increases in the Fed funds rate, as well as supply chains getting back on track, but we aren’t out of this mess. The labor market is still incredibly robust; last week, job data showed an increase of 500,000 (however, many were part-time). Wage pressures remain elevated, and a basket of goods, minus housing and energy, is still very elevated. While we’ve made progress, there are some warning signs we are far from out of the woods - this week, used car sales data came out, and it showed a 2.5% increase in prices last month. Car price upward price movement was the canary in the coal mine when inflation first started accelerating, so this is cause for concern.

The Fed will likely have to raise rates (25bp per meeting) several more times and then, keep them wrapped in their terminal rate for the foreseeable future. This is a headwind to economic growth and stock price performance (a considerable portion of the country is exposed to that fluctuation, from those with savings, private retirement plans, and pensions). We aren’t out of the woods yet.