From the desk of Willie Delwiche.
Key Takeaways:
- Inflation pressures surge and market is looking for more
- Bonds pricing in rate hikes but real yields remain buried in negative territory
- Gold finally taking a shine to favorable fundamentals as price action improves
Fed Chair Powell has referred favorably to the Trimmed Mean PCE Price Index, published by the Dallas Fed, as a gauge of inflation that does a good job of tuning out noise and distilling the trend. Looking at this index, there have been a couple periods over the past decade when price pressures softened and inflation unexpectedly fell short of the Fed’s 2% goal. Even still, inflation bottomed in the immediate wake of the Great Recession and has been trending higher since. In the months prior to COVID, the Fed was hitting its inflation goal and the 12-month change in this index was edging up to its highest level in over a decade. Inflation has intensified over the past year for a variety of reasons, not least of which is the pressure that was already building beneath the surface. The market now is pricing in both elevated inflation and increasingly aggressive actions by the Fed and that has investors evaluating their options.
