Can’t see it myself, but you never know:
UBS sees slower growth, rising unemployment and disinflation to lead the Fed to cut its benchmark rate to a target range ending the year between 2.50% and 2.75%.
1 Like
I can see it. Now wondering if I need to move some money into 1 year CDs or Treasuries, and out of the high yield savings and money markets.
1 Like
Edit: I will leave this in place, but my understanding and use of the term “disinflation” was incorrect as pointed out in posts below.
I certainly can’t see disinflation happening. Sure, it might happen in a few select items, but not for a general basket of goods and services.
And I also can’t fathom a Fed rate under 3% by the end of next year unless we get an actual recession.
We’d need unemployment to spike up to 7% or more to trigger a recession. I don’t see that happening either.
However, I can see a rate cut or two during 2024. Inflation seems to be decreasing even though employment is remaining exceptionally strong. Remember that lower inflation is NOT the same as disinflation.
I think UBS is completely out there on this one.
–Peter
3 Likes
Definitions in link below are how I understand it.
- Inflation is a sustained increase in the price level of goods and services.
- Disinflation is a decrease in the rate of inflation.
- Deflation is a sustained decrease in the price level of goods and services.
https://www.stlouisfed.org/open-vault/2023/august/explaining-inflation-disinflation-deflation
7 Likes
The FED might or might not cut rates but it is far too early.
The news agency thinks people will throw all in based on what they report. Good luck with that.
I will stand corrected on that based on the Fed’s definitions. Thank you for pointing that out.
Now, to re-think that post.
–Peter
Disinflation and deflation are already happening. Disinflation has been going on for months. Deflation has been more recent.
List of goods and services that are experiencing deflation:
Additionally, the Fed has been forecasting for months that they are likely to lower rates next year. They do this via their “dot plot.”
Page 4:
As of the last report, they are forecasting only a .5% decrease - but it would not surprise me if that is increased when they put out their next report.
1 Like
What do you call a scenario of - inflation over 3 years of about 20%, inflation over the next two years of about 6%, deflation over the next 2 years of 10%, and then a more steady annual inflation (1.5-2.5%) thereafter. The average over all that time still remains in the target range of 1.5-2.5%, even though it was divided into a short period of higher than normal inflation and a short period of deflation.
That would be a period of high inflation followed by disinflation where the rate of increase slowed.
DB2
2 Likes
Improper use of statistics.
Is the world’s average temperature over the last billion years relevant to our times?
The Captain
Maybe, maybe not. But the inflation over the last few years is definitely relevant because inflation is cumulative. If it goes up 20% LAST YEAR, then it is relevant because you are still spending 20% more THIS YEAR. If it goes up 20% over a few years, but then goes down by 10% over the next few years, you end up spending only 10% more at the end. It’s big difference.
That’s a good answer. So it appears that you are of the opinion that deflation of 10% isn’t called “deflation” if it was preceded by higher than “normal” inflation. I tend to agree (because as I mentioned above, inflation is cumulative).
2 Likes
I call it dam near impossible.
The last time we had deflation over a calendar year was 1954 and it was less than 1%. Before that it was 1949 and 2.1%. And before that, we have to go back to the great depression when we had deflation of 6%, 9%, and 10% for the years from 1930-1932.
So I suppose if we have 10% deflation over the course of 2 years, I’ll call it the Not Quite As Great Depression.
The only thing the Fed fears more than runaway inflation is deflation of any kind. It would take something approaching unprecedented to have cumulative deflation of 10% over the course of 2 years in today’s managed economy in the US.
–Peter