Commentary
What can breakeven inflation rates tell us about oil prices, energy stocks, and market direction? It turns out it’s a lot more than you think.
Since 2021, as the impact of an economic shutdown collided with $5 trillion in artificial, stimulus-driven demand, inflation has consumed everything from headlines to financial markets and the Fed’s monetary policy. With employment back to pre-pandemic levels, the monetary impulse has reversed, the supply-demand imbalance has normalized, and inflation is falling. Changes to the money supply precede changes in inflation by about 16 months.
(Source: St. Louis Federal Reserve, Refinitiv; Chart: RealInvestmentAdvice.com)
As discussed previously, the impact of higher interest rates on a debt-laden economy leads to the destruction of economic demand. That economic and inflationary decline is witnessed in numerous indicators. The Leading Economic Index (LEI) and our Economic Composite Index are good examples….