It’s a beautiful spring day, one where you feel a primal need to be outside. The sun is shining, the grass is green, birds are chirping, and everything seems truly alive. You grab your coffee, your keys, and a light jacket for the drive. You start your beloved vehicle, fasten your seat belt, turn on your favorite song, and begin your quiet drive…just as you do every day.
As your mind begins to drift to thoughts of upcoming events and activities, you become suddenly aware of a blur out of your passenger window. Darn it…here we go again! A massive and slumbering dog has suddenly awoken and is exerting every possible muscle in an attempt to catch your car. It seems unlikely the dog will catch up, and yet, now that the beast has begun…the dog seems to be gaining speed. The fierce canine is clearly targeting your back right tire with snarls and snaps that are, candidly, a bit terrifying. As you are familiar with this situation from previous days, you apply a bit more acceleration, your car clears the animal’s reach, and the dog gives up and goes back to its humbled approach to the day.
The next day, it’s a similarly beautiful day, and a similarly slumbering dog. And yet the instant you pass a certain point, the dog snaps to attention and is off once again and, this time, the dog gets even closer.
On the third day, the scenario and outcome are similar. Closer and closer the dog comes.
Which, on of the fourth day, leads you to ask: “what happens if the dog actually catches my tire!?”
I was reminded of this allegory recently as I was watching Federal Reserve Chairman Jerome Powell discuss their new, and suddenly resolved, determination to slow inflation. The parallel question then becomes “what happens if they are able to raise rates enough to stop inflation?”
Given the complexity of the topic, this will be our sole focus for the day.
We will begin with what inflation is and how high it has become. We will then turn to why it has occurred and wrap up with thoughts and perspective on possible outcomes. Let me also acknowledge that the topic of inflation and, in particular, Federal Reserve policy, is not one most Americans are thrilled about discussing…but I will note it is probably the most important dynamic in play right now (so I congratulate anyone who can make it to the end of this update!).
With that, let us begin.