By David Brady
This week, we got the CPI and PPI numbers for the month of July. Both fell and were lower than expected on a year-over-year basis. The markets reacted positively to the news because it lowered expectations for the next rate and increased the likelihood of a Fed 180 sooner rather than later. But how reasonable is this expectation?
Inflation numbers may be falling but they remain sky high. The issue for the Fed is the need to get inflation down by lowering demand for goods and services in the economy and thereby lowering prices. But lowering demand causes the economy to slow to the point of recession and, ultimately, depression. Is the Fed willing to go that far to conquer inflation? Maybe, if they’re pulling another 1929.