A Far More Cyclical Economy on the Horizon

Tuesday's news on producer prices is definitely bad.

This comes on top of last week's disappointing CPI data.

There is a substantial time lag between what happens in the economy and inflation, so we're really seeing the economic strength of last spring in the data here. There's reasonable hope for inflation not worsening in the coming months.

However, the Fed's stimulus, starting last August, will push inflation up some time next year. I'm increasingly fearful that the Fed has lost control; that they will swing between over-correcting with stimulus, to over-correcting with contraction. If that fear is realized, look for a far more cyclical economy than we have enjoyed the last 25 years.

Comments

[TPoise]

I think the Fed panicked with the .75 emergency cut (that now looks like it was due to a rogue trader). I wouldn't be surprised to see a .75 cut at the next meeting, or a .50 emergency cut before then.

This coming week is going to be a bloodbath.