A Wealth of Common Sense: Why Isn’t Inflation Falling?

Inflation continues to wreak havoc on the economy. While the year-over-year numbers have started to show a decline, inflation still remains near multi-decade highs over 8 percent.

That’s in spite of the Federal reserve raising interest rates at their fastest pace in the past 30 years. In theory, inflation should be falling. But a number of factors are at play that may keep inflation from falling – at least for the time being.

Inflation fears will also keep the market volatile in the months ahead. Markets are unlikely to bottom until investors are confident that the Federal Reserve is done raising interest rates. And the Fed is committed to raising rates to get inflation down.

Never mind the fastest rate hike cycle in decades. Or that mortgage rates have more than doubled since the start of the year. Rates are on track to move higher as long as inflation remains well over the Fed’s target of 2 percent.

There’s no silver bullet for the end of the market pain. And when the market does start to come off its bottom, investors won’t believe it at first. They’ll see another bear market rally, rather than the start of a new market.

For now, it looks like inflation will remain high as interest rates still aren’t high enough in real terms. And the job market remains strong, which keeps consumer spending wrong.

When those factors change, inflation will fall. And the market can then start to bottom out before the next move higher.

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