Our boilerplate introduction:The author, Joe Carson is the former Chief Economist & Director of Global Economic Research at Alliance Bernstein. Prior to that he was Chief Economist at Chemical Bank and at Dean Witter, firms he left in such rough shape they were forced to merge with JPM and MS respectively. (Just Kidding Mr. C.)...
From The Carson Report:
The Happy Prophecy That The Tightening Cycle Is Over Is Based On Hope, Not Hard Evidence
The current combination of today's low jobless rate (3.4%) and a high core inflation rate (5.5%) occurred only once in the post-war period, which was in the late 1960s. The Fed eventually broke that inflation cycle, doubling the unemployment rate in almost a year and pushing the economy into recession. Still, it required lifting official rates to 9%, approximately 400 basis points above today's rate and well above the trailing inflation rate.
The financial markets think, "This time is different." Investors believe the Fed can end the inflation cycle without additional tightening. But two factors argue against a benign outcome anytime soon....
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