When economic data is completely acceptable dinner party conversation, it's probably doing something unusual or scary. And that's exactly where we are with inflation.
Yesterday the latest data hit the tape, with the Consumer Price Index up 7.5% on this time last year - another 40-year record jump.
A tale of two trends
Rising prices can be a scary self-perpetuating cycle. Prices go up, so firms raise prices in response, which makes other prices go up and so on and so forth. The big lever that the Federal Reserve has is the Federal Funds interest rate, which can help restrict, or expand, the amount of credit in the economy — but interest rates remain anchored to historic lows, just above zero.
That's not going to be the case forever, and investors are quickly shifting their expectations. Investors have been expecting two, maybe three, rate hikes this year, but this latest data has investors wondering whether the Fed might do a "double hike" at the next meeting, which would raise interest rates by 0.5%, instead of the more usual 0.25% bump. The last time the Fed did a double hike? May 2000.
