US Equities Are Euphoric Despite Inflation To Come
A driver refuels their vehicle at a BP gas station in Detroit, Michigan, US. Food and prices at the gas pump accelerated during November, adding to already elevated inflation elsewhere in the US economy.
Photographer: Emily Elconin/BloombergAfter the consumer price inflation data came out, KPMG Chief Economist Diane Swonk said the Federal Reserve is now playing whack-a-mole with inflation. She’s right to worry. The headline number might have been a relief, coming in exactly as expected at 2.8% from the year earlier. But it’s still well above the Fed’s 2% target. It looks even worse if you exclude food and energy prices to focus on the underlying trend. That measure is 3.3% through November. After Trump takes office next month, tariff and deportation plans may push levels higher.
That’s bad for the economy and bad for risk assets, too. Yet market sentiment is euphoric. Deutsche Bank’s Jim Reid even posted a chart showing how disconnected Americans’ expectations for stock-market gains are from what they expect for their own incomes.