Risk Assets Fall As Inflation Fails To Resolve Quickly!
By Mitchell Anthony
September 16, 2022
2022 has been a volatile year for financial assets. Stocks, bonds, and real estate have all slid in price considerably as inflation has remained high contray to the forecast of the Federal Reserve last year. Inflation is the primary driver of liquidity that flows into risk assets. During periods of low inflation and accommodative monetary policy liquidity drives risk assets higher. However when inflation becomes unfriendly that causes the Fed to move to remove liquidity from the system and risk assets perform poorly. This is what we are experiencing today.
The consumer price index or CPI rose to 9.1% this year and is still holding at 8.3% or more currently. Month over month data looks a bit better with only a modest increase in inflation over the last three months but overall the data is still awful. As a result interest rates have risen this year and have been volatile with treasury yields now close to 3.8% and mortgage rates over 6%. Almost all risk assets have seen volatility as optimism and pessimism has played out. The fear is about a terrible economic bust that seems unlikely but can’t be discounted entirely until inflation has been subdued.Read more
