trump-inflation

As investors are focusing on the Federal Reserve this week, they may want to consider that President Trump has helped interest-rate policy makers a great deal.

A key to success in investing is setting aside one’s political beliefs when reviewing facts and figures. The data are clear that Trump has conquered a huge problem that central banks including the Fed, the European Central Bank and the Bank of Japan failed to solve for years.

The problem: disinflation, and often deflation, around the world. In plain English, falling prices. Falling prices lead to economic contraction, providing fewer opportunities for people. Yet, the goal of most governments is to increase opportunities for their citizens. For this reason, most governments want some inflation — rising prices.

Let’s start by looking at two charts. (Please click here for the first chart.) The chart shows the continuously compounded rate of change for the Consumer Price Index for all urban consumers, excluding food and energy. The reason we exclude food and energy from our timing model, the adaptive ZYX Global Multi Asset Allocation Model, is because they’re volatile. They create a lot of noise and, as you can see from the diagram, we filter out the noise. (Please click here to see all 10 categories of inputs to the timing models.) The insight from the chart is that core inflation since Trump’s election has risen to a five-year high.

The second chart confirms the conclusion of the first chart. (Please click here for the second chart.) The chart shows the one-month London Interbank Offered Rate (LIBOR), five-year forward inflation expectation rate and 10-year Treasury constant maturity rate. All of those measures are moving higher…Read more on MarketWatch

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