I remember watching Mike Tyson’s boxing matches on TV in high school. He didn’t just box. He hurt people. I remember watching one match where Tyson hit another boxer hard, and he went down. Then, he got up again, and Tyson knocked him back down. He should have just stayed down, but he didn’t, he got up a third time, and Tyson knocked him out cold. It would be best if inflation would just stay down too.
Inflation has been going down steadily but surprisingly jumped a little in January. It’s down drastically from six months ago but still higher than the Fed goal.
Some examples of inflation not staying down;
– A recent report showed that Consumer Price Index (CPI) rose by 0.5% last month, up from 0.1% in December.
– Producer Prices which also measure inflation, went up in January more than expected and was the biggest increase since June.
The annual inflation rate went down in January from December and is now the lowest since October 2021. But inflation is still putting a squeeze on American families. These rising prices mean that paychecks aren’t going as far as they used to, even last Fall.
With inflation proving sticky, I’m afraid the Fed will be tempted to continue raising rates. But unfortunately, they are walking a tightrope between fixing inflation before the 2024 presidential election and not going so fast that they trigger a recession.
The Fed doesn’t need to be alarmed for two reasons. First, higher housing costs made up almost half of the monthly increase in the CPI prices in January, and new rent prices have declined for several months and will bring down the CPI. Second, the early-year spending might be because we are having a warmer-than-normal winter, and Americans are spending more than usual.
I think the Fed should go slow and watch the effect their already high rates are having. Continued rate hikes aren’t worth the risk of a recession.
What would help is if inflation would just stay down. Mike Tyson’s opponents eventually started learning to stay down because eight of his boxing matches lasted less than a minute. His shortest match was against Marvis Frazier, who Tyson beat in 30 seconds. Frazier didn’t have an opportunity to stay down because one of Mike Tyson’s legendary uppercuts knocked him out cold. Likewise, we need inflation to stay down because we don’t want any more of the Federal Reserves’ legendary uppercuts.
Have a blessed week!
2760 East Sunshine St. Springfield, MO 65804
Dr. Richard Baker, AIF®, is the founder of and an executive wealth advisor at Fervent Wealth Management
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
