Summary

Massive over stimulation closed the output gap in record time, pushing nominal GDP 5% above trend and creating unprecedented labour demand. Consumers picked up the bill.

A PPI peak is close. There may be enough stimulus in the system for one more quarter to enable firms to keep pushing prices higher to protect margins.

The Fed can’t afford for Financial Conditions to ease. They have a long-term time horizon, they will stick to the narrative and just keep on tightening.

This is complicated by financialisation - when stock prices fall CEOs hack at employment and CapEx. Fed must force the equity market down to slow the economy.

Dropping JOLTs job openings to pre-Covid levels of 8 million requires the S&P to come down to 3000 guaranteeing an ugly recession.

Since 2020 new homes under construction are up 40%, meanwhile sales are dropping – The fallout could be enormous.

The ECB is faced by worse problems than the Fed but is time running out? A negative inventory cycle is already kicking hard and growth stands on the edge of a precipice with consumer confidence falling lower and lower.

Topics