"Markets"

Unemployment is plumbing new lows at a mere 3.6%, right up against the pre-pandemic 50-year low achieved in Feb-2020 of 3.5%. History shows that such drops which may fall even lower always precede spikes in unemployment due to recessions. Such spikes can occur within a few months of unemployment lows. While deep supply chain disruptions remain due to container ships stuck in transit, there is also a massive supply problem in labor because 1.6 million fewer people are working compared to pre-C19 in February 2020. We are witnessing a return to at least 1970s style stagflation. It's going to take more than several rate hikes, perhaps at least a 4-5% increase in the fed funds rate, to dent inflation in the housing market and other major sources. And stock markets will not stand for it which will force the Fed's hand to adopting dovish policies once again.

The CPI number Y/Y came in 0.1% above expectations at 8.5%, though core came in 0.1% below expectations at 6.5%, suggesting to some that inflation may have peaked. The PPI came in higher than expectations across the board. The problem is inflation has notoriously long tails of typically at least 2 years, so even if inflation does not increase from here, it can stay at the current levels for the next couple of years which would be disastrous to the economy and to savers.

Further, while many commentators with huge followings keep saying stock and crypto markets can now rally because everything is priced in, they have been putting up this prayer since the start of this year, yet here we are, still in a long term downtrend, due to the tightening of rates, as stock and crypto markets which bounced hard from oversold conditions are starting to roll over again.

The CME Fed Futures has priced in a 50 bps rate hike for their next two meetings, May 4 and June 15. This would bring the fed funds rate up to 125 to 150 bps from its current 25 to 50 bps. Will the U.S. stock market be able to stay above its -20% peak-to-trough threshold which has historically since 2009 been the point where the Fed Chair cries "UNCLE!". Thus expect inflation overall to continue to accelerate over time if hundreds of years of history are any guide along with markets trending lower until Powell reverses his hawkish position.