is recession the opposite of inflation

We interpret this measure as a market-based estimate of long-run equilibrium real rates, which serves as an approximation to the natural rate of interest.8 Finally, the proxy for expected inflation computed at quarters $$t$$ and $$t+6$$ is the average of quarterly ABC expected headline inflation over the following 4 quarters. But it will surely be far, far in excess of 300 basis points and the pain will be spread over years, not months, as has been the case to date. Stocks focused on economic growth and a stable economy slumped in early morning trading on Friday. The S&P 500 is down more than 5% for the week, and the Dow Jones Industrial Average dipped into bear market territory on Friday, as traders grew worried that an aggressive rate hiking campaign from the Federal Reserve will push the economy into recession. Also discouraging for investors was that the unemployment rate improved partly for the wrong reasons. Core Producer Price Index for Finished Goods Less Food And Energy, 19762022. This year, Santa may not deliver.". The bank maintains a long position in healthcare, replacing its previous position in communication with utilities and staying short on financials and industrials. But even then, the core PPIwhich runs lower than the CPIwas still at 4.7% in Q4 1982. 33, No. We are talking about the so-called core index here, thereby excluding the even more vicious up-cycle in food and energy. "The real term structure and consumption growth," Journal of Financial Economics, Vol. Ajello, Andrea, Luca Benzoni, and Olena Chyruk (2020). Major European markets lost 2% on the day. Spot silver decreased 4.1% to $18.85 per ounce. In probit model (2), the slope of the near-term premium is insignificant, while the risk-premia slopes are significant in Benzoni, Chyruk, and Kelley (2018). Federal Reserve Chairman Jerome Powell used the now-familiar term "new normal" to characterize the current state of the high-inflation low-growth U.S. economy. Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. "The market has been transitioning clearly and quickly from worries over inflation to concerns over the aggressive Federal Reserve campaign," said Quincy Krosby of LPL Financial. In the Great Recession recovery, increased corporate power did not manifest in faster price growth that made room for fatter profit marginsprice growth was actually quite subdued over the first few years of that recovery. The S&P 500 was near the lows of the day, testing its June lows, ahead of the final hour of trading. The yield on the 2-year Treasury hit a new 15-year high on Friday, while the 10-year yield neared levels not seen since 2011. Holston, K., Laubach, T., & Williams, J. C. (2017). The dollar move comes as the U.K. unveiled new economic measures to revive its economy. We simulate 100,000 samples of Treasury yields and inflation rates from the conditional density implied by our estimates of the ABC model, starting from 2022Q2 as our initial condition and going through 2023Q4. As the name implies, deflation is the opposite of inflation. Microsoft is quietly building a mobile Xbox store that will rely on Activision and King games. Real GDP Versus Core PPI, Q4-1979Q4 1980. We do think its going to moderate over the next few quarters.. Dow Jones Futures went up 41 points, or .14%, to 30,190. Luca Benzoni is with the Federal Reserve Bank of Chicago; Andrea Ajello, Makena Schwinn, Yannick Timmer, and Francisco Vazquez-Grande are with the Board of Governors of the Federal Reserve System. Contact us But a few factors could moderate increases in 2023. Corporate power is clearly playing a role, but an increase in corporate power likely has not happened recently enough to make it a root cause of the inflation of 20212022. As market volatility persists, the Swiss bank shared the types of hedge funds it prefers. Expand your Outlook. The second column displays the estimates for a probit specification estimated on the four NTFS components given on the right-hand side of equation (1): the six-quarters-slope of the expected inflation curve, the current policy gap, the six-quarter-ahead expected policy gap, and the term premium. What is happening is people are taking multiple jobs in order to stay abreast of the soaring cost-of-living, and also because work-from-home has made it, There will be no going back to 2019 prices in any sector. EPIs research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans. The dynamic generally has been characterized by falling unemployment rates that increased bargaining power for workers that in turn led to real wage growth threatening to outpace economy-wide productivity growth. (Data: Federal Reserve Economic Data [FRED], St. Louis Fed)Moreover, the impact on the labor market was severe. The GOP has not said how it would tackle inflation or a recession. By any definition of the term, thats not short and shallow.. Ford, Tesla and General Motors also shed about 4% each. Since the Fed will be locked in a battle to tame the price side of the equation even as real output falters for months and years to come, we seriously doubt that the economic contraction to be recorded on Joe Bidens watch will be described in the history books as a very slight recession.. While the NTFS is currently positive, market participants anticipate further monetary policy tightening in the upcoming months.5 If such interest rates hikes indeed materialize, they could result in a lower NTFS and thus an increase in recession probabilities. With yields moving opposite price, the capital losses for holders of those bonds are piling up as central bank are no longer able to keep rates low. Consequently, Volcker did not get the Fed funds rate under 6.0 percent until October 1986. Palladium slid 3.8% to $2,087.67. Stocks have tumbled over 20% from records this year on worries about inflation, interest rates and the possibility of a recession. Prices on US consumer products increased by an average of 8.2% in September 2022 as compared to a year earlier, a Thursday report by the US Bureau of Labor Statistics (BLS) revealed.The news means the Federal Reserve, the US central bank, can be expected to make another strong increase in interest rates at its November 1 meeting. Shaded bands mark the upper and lower quartiles and the grey vertical bar indicates the beginning of a recession episode. In the meantime, higher rates push down on prices for stocks, cryptocurrencies and other investments. Return to text, 5. Our proxy for the natural rate is the short-term real rate expected to prevail in the longer run as all transitory shocks have dissipated. By hiking interest rates, the Fed is hoping to slow the economy and jobs market. At bottom, therefore, this inflation is virulent, embedded, and not going to be easily eliminated, even by a miraculous collapse of gasoline or grocery store prices. This is visible in the mid-1960s and, more recently, in response to the taper tantrum episode of 2013.15. Its inflation rate peaked at 9.1% in June and fell to 8.3% in August as oil prices eased. The Dow notched a new low for the year and closed below 30,000 for the first time since June 17. "The forward paths of inflation, economic growth, interest rates, earnings, and valuations are all in flux more than usual with a wider distribution of potential outcomes," wrote David Kostin in a Thursday note. 2, pp. The plan is to starve inflation of the purchases needed to keep prices rising even further. It's an easy expense to control, which is why ad spending fell 27% during the Great Recession in 2008. Notes: Labor share for the fourth quarter of 2008 was smoothed to remove a large spike in the data stemming from large write-offs of underperforming assets in the financial sector during the financial crisis of that year. As of June 10, 2022, the baseline ABC model predicts that nominal yields will rise to 2.5% in 2022 and peak at 2.8% in 2023. In contrast, the near-term expected policy gap and the near-term premium contain little information that predicts downturns. The pandemic directly shifted demand out of services and into goods (people quit their gym memberships and bought Pelotons, for example) just as it also caused a collapse of supply chains in durable goods (with rolling port shutdowns around the world). Through this analysis, we show that future inflation outcomes and the odds of a recession depend critically on both the pace of removal of monetary policy accommodation and on how restrictive the monetary policy stance will become over the medium term. Consumer discretionary names like Royal Caribbean and Norwegian Cruise Line also shed more than 5%, adding to the losses in the benchmark index. What was different this time that channeled this power into higher prices rather than slower wage growth? "The predictive power of the yield spread: Further evidence and a structural interpretation," working paper, Universit Bocconi. However, Democratic leaders have pushed back, saying that low unemployment, high wages, and a strong stock market suggest the opposite. "The US is the worst-performing region if the cost of high yield rises (which we think it will, with credit spreads far too low, pricing in only a 34% chance of a recession)," he wrote. Consumer Staples is the best performer, down -0.42%. You can participate in the discussion within 24 hours after the publication of the article. Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times. The Dow dropped 630.15 points to 29,296.79, while the Nasdaq lost 420.91 points to close at 10,652.40. In this more restrictive scenario, the policy gap keeps tightening over 2023, and the core inflation gap closes by the end of 2023. David Stockman is senior fellow of Brownstone Institute. There are two opposing forces at play: On the one hand, the ABC estimate of the policy gap, $$(r_t^1 r_t^{\ast})$$, is wide and negative in 2022Q1-2022Q2, pointing to a current high degree of monetary policy accommodation that is typically associated with a recovering economy. Research. Stocks have tumbled over 20% from records this year on worries about inflation, interest rates and the possibility of a recession. Goldman Sachs sees the chances of a 'hard landing' resulting in a U.S. recession as more likely than ever following the Federal Reserve's latest meeting and interest rate hike. "The way the market is, and how hard it's come down, it's going to be hard to get too much traction below it," he said. 22, No. Currently, however, the labor share of income and real wages are falling sharply in the recovery even as unemployment falls. It marked the fourth negative session in a row for stocks, as the Fed on Wednesday enacted another super-sized rate hike of 75 basis points and indicated it would do another at its November meeting. The views expressed in this note are solely those of the authors and should not be interpreted as reflecting the views of the Federal Open Market Committee, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of Chicago, or of anyone else associated with the Federal Reserve System. Thus, it carries information about current and near-term real interest rates, future expected inflation, and the interest rate forward risk premium (or term premium), which in turn are linked to expectations of future business cycle outcomes. Thats a continuation of a longstanding trend that could keep upward pressure on wages and inflation. Inflation this year is anticipated to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economiesupward revisions of 0.9 and 0.8 percentage points respectivelyand is projected to remain elevated longer. Estrella, Arturo, and Gikas A. Hardouvelis (1991). Rudebusch, Glenn D., and John C. Williams (2009). Real GDP Versus Core PPI, Q4-1979-Q4 1980. This analysis highlights the relationship between the potential risk of an economic contraction and the degree of monetary policy tightness that is enacted in response to inflationary pressures. "New normal" has been put to use multiple times over the past years, most prominently to describe the financial crisis in 2008, then the Covid-era economy. The rationale for this is simply that todays high inflation must be driven by an imbalance of aggregate demand (planned spending by businesses, governments, and households) and aggregate supply. Nvidia and Advanced Micro Devices slumped 1.5% and 2.1%, respectively. "Relative earnings revisions are rolling over sharply to be worse than global (partly due to dollar strength).". He later became one of the original partners at New York-based private equity firm, The Blackstone Group. All Rights Reserved. In contrast, the near-term expected policy gap and the near-term premium contain little information that predicts downturns. Practices, Structure and Share Data for the U.S. Offices of Foreign In unreported robustness checks, we have also considered $$r^{\ast}$$ estimates obtained from the models of Holston, Laubach and Williams (2017), Johannsen-Mertens (2016), Lewis and Vazquez-Grande (2017), Lubik and Matthes (2015), and Del Negro et al. Among people who arent working, fewer than usual are actively looking for jobs. Consistent with such communications, market participants anticipate further monetary policy tightening in the coming months; for instance, the 2023 consensus forecasts of the federal funds rate in the July 2022 Blue Chip Survey of Financial Indicators are in the 3.4-3.5% range. We simulate future realizations of the policy gap and the slope of inflation forecasts from the ABC model from current initial conditions through 2023Q4. "The Near-Term Forward Yield Spread as a Leading Indicator: A Less Distorted Mirror," Financial Analysts Journal, 75:4, 37-49. 175196. In addition to the Fed, the Bank of England, Swiss National Bank and the central banks in the Philippines and Indonesia, among others, also approved sizeable rate hikes this week. Good data on these separate cost components exist for the nonfinancial corporate (NFC) sectorthose companies that produce goods and servicesof the economy, which makes up roughly 75% of the entire private sector. "The low of the year is 3,636. March posted a 2022 high at just over $130 per barrel. So what we have is the very opposite of Powells hideous transitory inflation. Board of Directors https://cdnn1.img.sputniknews.com/img/107034/46/1070344646_106:0:1813:1280_1920x0_80_0_0_ff3e36b90a39de1a6d3f59d5f0d6c216.jpg.webp, The IMF Says The Worst is Yet to Come, Warns 2023 Will Feel Like a Recession. Hamilton, James D., and Dong Heon Kim (2002). If it is, itll be a very slight recession. That will weigh on stocks through the end of the year. When all is said and done, Volckers conquest of the 1970s inflation came at a steep price to the macro-economy because there was no alternative once the inflationary spiral became embedded. In the short run the Fisher equation holds in approximation, and the nominal short-term rate can be written as the sum of the real rate and expected inflation k-periods ahead, multiplied by a constant $$0 \lt \delta \le 1$$, $$$$ y_t^1 \approx r_t^1 + \delta\pi_{t+1:t+k}^1.$$$$, Hence, the NTFS can be further decomposed as the sum of the real forward spread, $$(r_{t+6}^{e,1}-r_t^1)$$, the slope of the expected inflation path $$\delta(\pi_{t+7:t+6+k}^e - \pi_{t+1:t+k}^e)$$, and the term premium term, $$tp_t^{t+6}$$. That is to say, three years of zero net growth in real output. If we don't firm up then, then we know it's equally here in the U.S.," Cashin said on CNBC's "Squawk on the Street.". 34, No. A key to navigating a recession relatively unscathed is having cash in the bank. Return to text. We use cookies to understand how you use our site and to improve your experience. In short, a bad stagflation is here. Note: This chart depicts fitted recession probabilities, conditional on being in an economic expansion, using quarterly data from 1962Q2 to 2022Q1. "Forecasts of Economic Growth from the Bond and Stock Markets," Financial Analysts Journal 45(5): 3845. Review of Monetary Policy Strategy, Tools, and We are grateful to Gene Amromin, Jim Clouse, Rochelle Edge, Eric Engstrom, Giovanni Favara, Spencer Krane, Trevor Reeve, David Lpez-Salido, Steve Sharpe, and Min Wei for many insightful comments. Technology stocks were among the market's worst performers on Friday, with shares of some giants including Meta Platforms notching fresh 52-week or multiyear lows in some cases dating back to the start of the pandemic. Unemployment Rate And Unemployment Level, August 1979 to January 1983. Boockvar wrote Friday morning. This extends previous work by Ang, Piazzesi, and Wei (2006), Bauer and Mertens (2018a and b), Benzoni, Kelley, and Chyruk (2018), Favero, Kaminska, and Sderstrm (2005), Hamilton and Kim (2002), Rudebusch, Sack, and Swanson (2007), and Wright (2006), who exploit a termstructure decomposition into its expected nominal rate path and risk premium terms. It cited the surging value of the U.S. dollar against other currencies, which weakens the dollar value of sales made abroad, as well as a more cautious outlook on economies across North America and Europe. The dating of recessions follows the National Bureau of Economic Research (NBER) convention. In this section, we quantify the impact of possible future monetary policy tightening on downturn risk and inflation outcomes. Read latest breaking news, updates, and headlines. The recession probability implied by the specification of model (2) takes the following form: $$$$ P\left({NBER}_{t+1:t+4}=1|{NBER}_t\right) = \Phi \left(\alpha_{NBER_t}+\beta_{NBER_t}^{\pi}(\pi_{t+7:t+11}^e - \pi_{t+1:t+4}^e) + \beta_{NBER_t}^{gap} (r_t^1-r_t^{\ast}) + \beta_{NBER_t}^{gap^e}(r_{t+6}^{e,1}-r_t^{\ast}) + \\\\ + \beta_{NBER_t}^{tp}(tp_t^{t+6}) \right) $$$$, Where $$\Phi$$ represents the cumulative distribution function of a standard normal distribution. That is to say, the mule needed a stronger 2X4 betwixt the eyes, a therapy that Volcker soon realized was unavoidable. Favero, Carlo A., Iryna Kaminska, and Ulf Sderstrm (2005). The U.S. dollar is also continuing to climb which could weigh on U.S. multinationals. "The Term Structure as a Predictor of Real Economic Activity," The Journal of Finance 46(2): 555576. For Peter Boockvar, chief investment officer at Bleakley Financial Group, it's more evidence of a bubble popping in sovereign debt in which real yields had been running at negative level for years. The major averages capped their fifth negative week in six, with the Dow giving up 4%. So what we have is the very opposite of Powells hideous transitory inflation. Real GDP Versus Core PPI, Q3 1981 to Q4 1982. If it is, itll be a very slight recession. In previous recoveries, domestic demand growth was slow and unemployment was high in the early phases of recovery. "It matters because if you can't get what you want to get done, you will start spreading contagion around markets," he said. 4, pp. Bear in mind, the Dow first closed above 30,000 on Nov. 24, 2020 (lifted by optimism over a Covid vaccine and a hoped-for return to economic growth), and went on to reach an all-time intraday high that very nearly (36,934.84) touched 37,000 back in the first week of January this year. The bank also expects technology to suffer the largest downgrades in the third-quarter earnings season, with Garthwaite noting that software valuations are particularly expensive. After leaving government, Stockman joined Wall Street investment bank Salomon Bros. In this alternative scenario, inflation declines more rapidly than in the baseline case, at the cost of a higher downside risk for economic activity, as the one-year ahead recession probability approaches 60% by the end of 2023. Moreover, we examine the tradeoff between the Federal Reserve's ability to reduce inflation by increasing the federal funds rate and the effect of such intervention on the estimated likelihood of an upcoming recession. Recent work by Cooper, Fuhrer and Olivei (2020) documents that the stance of monetary policy plays a determinant role in forecasting recessions. Everything hinges on inflation at this point, said Peter Essele, head of portfolio management for Commonwealth Financial Network. This finding is mostly driven by the experience observed in the second part of the sample period, during which economic downturns have generally been accompanied by mild or even negative inflation.11 The marginal effect of the expected future policy gap and the term premium are not significant in model (2) and therefore we do not include these variables in model (3).12 Model (3) confirms that the bulk of predictive power in the NTFS comes from the current policy gap and the expected inflation slope, without loss of fit relative to model (1) and model (2) measured by the pseudo-R2 of McKelvey and Zavoina (1975) or by the Akaike information criterion.13, Figure 1 compares the fitted recession probability estimates based on model (1), the blue solid line, and (3), the green dashed line, as well as the 16% unconditional estimate of the recession-transition probability (the dotted line).14 While the signal that the probit models provide ahead of recessions is comparable across the two specifications, the fitted recession probability for model (3) features fewer false positives than the model that relies only on the NTFS as a leading indicator. Nomura downgraded its forecast for China's 2023 annual growth to 4.3% from 5.1%. Here's how to tilt it back. Exploring how race, ethnicity, and class intersect to affect economic outcomes in the United States. (AP Photo/Mary Altaffer, File), Connect with the definitive source for global and local news. All the major averages are slated to end the week with losses ahead of Friday's trading session, with the Dow on track to break below its June closing low. 63, No. The crypto market is especially spooked along with the broader markets after the Federal Reserve this week recommitted to an aggressive rate hiking plan. Harvey, Campbell R. (1993). Another hotter-than-expected inflation report puts pressure on the Federal Reserve to raise interest rates even more aggressively, but that also could tip the economy into a recession. Banks, New Security Issues, State and Local Governments, Senior Credit Officer Opinion Survey on Dealer Financing The structural weakness and fragilities have been long in the making and amplified by the duration and size of the Federal Reserve's QE, El-Erian added. For instance, the consensus forecasts for the 2023 realization of the federal funds rate are in the 3.4-3.5% range in the Blue Chip Survey of Financial Indicators released on July 1, 2022. Moreover, the impact on the labor market was severe. The decomposition helps us to explain why the NTFS does not currently forecast a recession, as shown by Engstrom and Sharpe (2022). The black dotted line marks the unconditional probability of transitioning from an expansion into a recession, which is 15.5%. The NTFS can be expressed as the difference between the expected one-quarter nominal Treasury yield that markets believe will prevail 6 quarters from now, $$y_{t+6}^{e,1} = E_t[y_{t+6}^1]$$, and the current one-quarter yield, plus the difference in term premium on the six-quarter-ahead forward rate and on the one-quarter Treasury yield, ($$tp_t^{t+6} - tp_t^1$$), where $$ tp_t^1 = 0$$: $$$${\rm NTFS}_t = y_{t+6}^{e,1} - y_t^1 + tp_t^{t+6}.$$$$. Theyve been among the hardest hit by this years rising rates, which most hurt investments seen as the riskiest, most expensive or having to make investors wait the longest for big growth. Of these two counter-acting effects the first one prevails, resulting in the low recession probability documented by Engstrom and Sharpe (2022). Of course, our results hinge on several modeling assumptions. The expectation of lower future rates reduces forward rates, resulting in a negative NTFS. Its a pattern that has been repeated several times this year. Our experienced journalists want to glorify God in what we do. Return to text. We define the natural rate of interest as the real short-term interest rate that would prevail absent transitory disturbances. Since the trough of the COVID-19 recession in the second quarter of 2020, overall prices in the NFC sector have risen at an annualized rate of 6.1%a pronounced acceleration over the 1.8% price growth that characterized the pre-pandemic business cycle of 20072019. Thats why todays announcement from Pepsi should get the last word. Accordingly, purging the virulent inflation that became embedded in the wage-price-cost nexus looked nothing like Joe Bidens itty bitty recession, nor the soft landing that Wall Street bulls never stop peddling. Where $${\rm fwd}_t^6$$ is the six-quarter ahead one-quarter Treasury rate and $$y_t^1$$ is the one-quarter Treasury rate at time $$t$$. See the Appendix below for more details on how we derive equation (1). All such variables respond over time to aggregate shocks to the outlook and to the conduct of monetary policy. Using data through early June 2022, we estimate a largely accommodative current policy gap that lowers the odds of an incipient economic downturn. More specifically, we use inflation and Treasury yields data available through June 10, 2022. Shares of travel-oriented names took the biggest leg lower, with Norwegian Cruise Line, Carnival, Caesars Entertainment, and Royal Caribbean down 4% each. Privacy Policy Contact Us. The steep 10% unemployment rate during the Great Recession in 2009 taught us this. Harvey, Campbell R. (1991). Model (2) and model (3) show that an increase of the current policy gap, i.e., tighter policy today, is associated with higher probability of an upcoming recession. Nov 4 "Do we start to firm up then? Phone: 202-775-8810 epi@epi.org Monetary Policy, Inflation Outlook, and Recession Probabilities 1. On the other hand, this choice forces us to span a sample period characterized by multiple regimes of monetary policy that might be better captured by, e.g., a regime switching model (see, e.g., Ang, Bekaert, and Wei (2008)). It would be the fourth such increase, which is triple the usual amount, and bring the rate up to a range of 3.75% to 4%. . The inflationary shock has occurred in essentially all rich nations of the worldits very hard to find any country-specific policy that maps onto inflation. As shown below by the purple line, real GDP peaked in Q1 1980 and then declined thru Q3 1980 during Volckers mini-recession. Note: These charts show the evolution of the policy gap and inflation slope leading up to recessions using quarterly data from 1962Q2 to 2022Q2. Return to text, 17. Thus, movement in any of these components can drive fluctuations in the NTFS and help forecast downturn risk in their own right. The Russell 2000 index fell 50.36 points, or 2.9%, at 1,702.15. Theres an inherent imbalance of bargaining power between employers and employees. Jobs at EPI Branches and Agencies of Checks), Regulation II (Debit Card Interchange Fees and Routing), Regulation HH (Financial Market Utilities), Federal Reserve's Key Policies for the Provision of Financial "A lot of people can't get done what they want to get done, so they're getting done what they can get done. The Flash US PMI Composite Output Index declined at a softer pace this month, falling to 49.3. The latest threat to stocks now isn't any macro risk it's rising 2-year Treasury yields, according to some fund managers and strategists. "The term structure forecasts economic growth," Financial Analysts Journal, May/June, pp. He is a former congressman from Michigan, and the former Director of the Congressional Office of Management and Budget. Sign up for free newsletters and get more CNBC delivered to your inbox. As inflation bites, grocery chains cut price of Thanksgiving food Food costs a lot more than a year ago, but your holiday menu doesn't have to as deals abound on traditional fare. 305333. The Dow on Friday dipped into a bear market on an intraday basis, trading more than 20% below its January intraday record. Cambridge, MA: MIT Press. FedEx's announcement comes soon after a hotter-than-expected inflation report in the U.S. on Tuesday, which raised concerns that the Federal Reserve will be forced to cause a recession to cool prices. "Economic forecasts with the yield curve," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, No. Todays PPI report for September should remove any cause for doubt. "The term structure of real rates and expected inflation," Journal of Finance, Vol. Don't underestimate the amount of suboptimal decisions being made right now because liquidity has become so patchy," he said on CNBC's "Squawk Box" Friday. The S&P broke below the closing June low of 3,666, and its intraday low in June was in sight at 3,636. Citi suggests investors take a defensive stance to play this uncertain market. But in dismissing the increased corporate power explanation for recent inflation, they also seem to be discarding any useful information that recent sky-high profit margins might provide about the validity of their alternative view. "Only when Jan to October returns were strong has a year-end rally been in the cards. This led firms to become desperate for more customers but also gave them the upper hand in negotiating with potential employees, which led to subdued price growth and wage suppression. More detailed methodology can be found here. If this dynamic was allowed to get out of hand, the result could potentially be a wage-price spiral, with firms having to raise prices simply to meet workers wage demands and workers in turn demanding pay increases to insulate them from rising prices. Data is a real-time snapshot *Data is delayed at least 15 minutes. 1, pp. Bond yields soared this week following the Fed's actions, with the 2-year and 10-year Treasury rates hitting highs not seen in over a decade. Inflation is when prices rise over time.
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