May 9

5/9 - The March CPI was up 8.5% from a year ago, the largest jump since Dec 1981. Soaring wages are still running well behind inflation, prompting workers to push for even more money. Economists call this a wage-price spiral. Most analysts underestimated both the pandemic’s longevity and the extent of its effects on supply chain. As result, “transitory” inflation was anything but – and the Fed is late to the inflation-fighting party. The Fed raised its federal funds rate by a ¼ point in March and another ½ point last week. Expect another ½ point increase in June, then 4 more (¼ point?) increases in the 2nd half of 2022. In all, we’re looking for interest rates to be 3.5% higher by the end of 2023. That means higher loan and lease costs for homes, cars, credit cards, and everything bought on time. Think of inflation as a cancer, rate increases as the Fed’s chemo, and recession as a potential side-effect.