Good morning contrarians! Stock futures are dropping as bond markets indicate fear of inflation and of further Fed rate hikes…

The Fed is now starting to make some noise about a 50bps rate hike at the next meeting, judging by comments from Fed speakers yesterday. Traders are now pricing in a ~69% chance of 25bps rate hike (from 75% at the start of the week), which frankly still sounds optimistic.

In fact, there’s a good chance investors are still in denial about the Fed. On some level this makes sense seeing how it’s been 40 years since our last serious bout with inflation. And our experience in this period — especially the last quarter century of Greenspan puts, etc. — showed that the Fed was quick to flood the market with liquidity at the first sign of trouble.

Central banks can do these things when official inflation figures are low or non-existent. As we’ve seen, those days are now over. To (mis)quote Don Henly, we should really accept this reality.

More here, including a free audio highlight of today’s podcast: