Taming U.S. Inflation Will Likely Take Years

by Douglas Cliggott

There is a belief shared by U.S. monetary policy makers and many financial market participants that a meaningful economic slowdown in the next 12-to-18 months will “fix” the inflation problem in the United States. The word “transitory” may have been stricken from the Federal Reserve’s lexicon they use to describe inflation in America, but that description still seems to be alive and well in their economic forecasts. The FOMC’s latest projections assume a rapid decline of their preferred measure of core inflation to 2.3 percent in 2024. And this decline from the current 4.8 percent pace is expected to happen with only a modest increase in the unemployment rate, to 4.1 percent. Similarly optimistic inflation forecasts are visible in financial market pricing. Fed fund futures are now pricing cuts in short-interest rates already during 2023 – an even more optimistic view than that of the FOMC. And a current yield of just 3.13 on a 5-year Treasury note embeds an equally sanguine view of how easy it will be to get to the other side of our current inflation problem.

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