According to U.S. Treasury Secretary Janet Yellen economists who predicted that a sustained period of high U.S. unemployment—and perhaps even recession—would be needed to bring down inflation are now “eating their words”. This follows earlier comments by Ms. Yellen last month that a soft landing is “on track.” Claudia Sahm, a US macroeconomist, agrees. In an interview with the FT earlier this month, she says:
The soft landing is not here yet. But it is in the bag.
Markets seem to agree with the assessment by the Treasury Secretary and Ms Sahm; bonds have rallied like a bat of hell in the past month—temporarily pegged back by a semi-hot NFP report on Friday—and equities are in a good mood too. November, I am reliably told by the financial media, was the best month for a standard 60/40 portfolio … ever. And why wouldn’t markets be celebrating? Inflation in the developed world is now falling rapidly, and what was a significant inflation shock in core prices has now been turned on its head, as the charts below show.
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