What’s an Antonym for ‘Stagflation’?

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Special Guest Blogger: Tim Kearney

October brought more calming inflation data. Headline CPI rose by 2.5% year-over-year, up from 2.3% in September but still down from July’s 2.9% reading. Core is back down to 2.1% year-over-year, right on top of its three month moving average. Do not get hypnotized into picking apart the breakdown. Keep your eyes on the big picture; some prices may go up but with a consistent monetary policy, those rises may be offset elsewhere in the report. Looking at inflation sensitive market indicators, we see a rather consistent story and believe that inflation is not going to break out to the upside. The DXY has risen by about 10% since March. Over the past six months, gold has been down by near 10%, oil by 20% and the broad commodity index by 10%. It will be difficult for the Federal Reserve to keep hiking if the inflation rate remains at target, and especially if it moves below target. After all, the FOMC is still concerned about deflation. We are in the sweet spot; what is the opposite of ‘stagflation’?

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