Hotter Inflation

Tuesday’s Consumer Price Index (CPI) came in hotter than anticipated. Many investors were hoping for the Federal Reserve to begin lowering interest rates soon. This report dispelled that notion. With a little perspective, the inflation report was not all that bad. No trend is a straight line, and expectations that inflation would continue to fall quickly was too optimistic.

Progress on reducing inflation has been remarkable. Much has been accomplished and quickly, too. Expectations just got ahead of themselves. Even more impressive, this progress has been made without damaging the economy. Employment is high, the consumer is spending, and general wealth and bank balances are at all-time highs. Complaints ring a little hollow.

The Bull and his partners have long said that getting inflation down to the Fed’s two percent target would be difficult. We pointed out that the long-term inflation experience has been inflation closer to three percent. That is exactly where the rate seems to be getting sticky. The Federal Reserve will eventually find three percent as acceptable, but that will take time and they may never admit it. In the meantime, investors need to go through an adjustment period. They certainly will. We have had excellent markets with inflation and interest rates higher than this! Stay steady my friends.

The Lonely Bull