Growth Solves Problems
Macro Perspectives
After another round of rate hikes last week, we ended the week with a hot jobs report.
That said, the wage component of the jobs report continued the trend lower, from the March peak.
Following the jobs numbers on Friday, the January report on economic activity in the services sector was strong - it showed a return to growth, after a dip in December.
Meanwhile, the price component of the services report showed the slowest rise in prices in nine months (on a steady trend of slowing).
The inflation data in these reports should be well received by the Fed.
As a reminder, the massive monetary and fiscal response to the pandemic (plus the subsequent Democrat agenda spending binge) ramped the money supply by 40% in just two years. That was ten years worth of money supply growth (on an absolute basis), dumped onto the economy over just two years.
With that, we expected the price of everything to reset higher. Now, what we don't want is to see the level of prices decline.Â
Deflation would kill growth, and leave us with trillions-of-dollars of fiscal bullets fired, with no growth to show for it (only the massive increase in debt, with no growth offset).
What matters now is rate-of-change in prices (i.e. slower).
Inflation is slowing, and importantly, it seems to be happening without destroying the economic firepower of six-trillion dollars of new money floating around. That's good news.
Growth solves a lot of problems.
We need a period of hot growth, rising wages, and stable (but higher than average) inflation (to inflate away debt).
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