Brett Schafer's avatar
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Newsletter: Is Inflation Over?
This is an excerpt from our FREE Sunday newsletter over at Chit Chat Money

"Consumer prices fell by 0.1% from November to December. This brought the trailing twelve-month consumer price index (CPI) down to 6.5%. This TTM CPI will continue to fall unless we see a radical change from one of the major inputs to the index.

I think the great inflation scare of the last few years may be over. It really was transitory, huh? Well, no, not exactly in the original way the Fed put it, as they decided they needed to raise interest rates at the fastest pace in their history in order to stamp it out.

What does this mean for investors? It doesn’t change much for me. I like to look for companies that will do fine with or without inflation, so my strategy hasn’t changed.

Some might argue that — if inflation is stamped out — a few sectors like housing will benefit. The theory with housing for bulls (if you want to call them that) is that everything will be fine once the Fed stops hiking and mortgage rates normalize.

But I don’t buy it. Just because inflation goes away doesn’t mean the Fed is immediately going to bring rates back to zero, which means mortgage rates will probably be around 5% or higher in the best case scenario.

That makes the housing bubble worse than in 2007 but without the systemic risk from the banks to the global economy.

If mortgage rates actually stay above 5% for 2 - 3 years, it’s hard to see a path where real estate prices don’t experience a larger drawdown than in the GFC.

I’m just spitballing here, but I don’t think inflation going away changes the impacts that a 3% Fed Funds Rate has on the U.S. economy. Which is why the monthly reports don’t matter that much anymore."

So, is the inflation scare over or not?
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