How serious is the Fed about inflation now?
Abraham George Macro Musings
Next week’s Fed meeting is the most awaited economic event for this month. But before that, there are some economic data that will be released to strengthen the Fed’s newly admitted inflation concerns.
For example. later today. we will get the November inflation report. It is expected to be around +0.7% which is hot. October headline number was +0.9%. If we extrapolate that for 12 months we have double-digit annual inflation.
The concern we should have is, assuming conditions hold, how aggressively will the Fed go after inflation? Economic expansions tend to end when the Fed starts a tightening cycle.
The Atlanta Fed model, which always provides the first indications of economic growth is projecting almost 9% growth for Q4. If they are for real, we could see 6% growth for the full year. If it is so, then we should be seeing the fastest growth since the early 1980s
The Fed as we know has given up on inflation being ‘transitory’ but has maintained the line that inflationary pressures will likely last into the middle of 2022. Is it so? If they have been wrong about the ‘transitory’ rhetoric, why should we still believe them that inflationary pressures will die down in just six months?
In a future article, I can show you how wrong the Fed and the major investment banks were during 2014 and how much resemblance it has to what we are experiencing now.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund. Currently, he is setting up a hedge fund where foreign citizens can invest in Indian growth stocks like Tanla operating in hyper-growth markets like CPaaS.