There is little reason to doubt the rising inflation that has occurred over the past few years. While many (including the Federal Reserve) were in denial (remember "transitory"?), there is no question higher prices have had an impact on the economy, though perhaps this rise in prices may not cripple the economy, considering job gains are strong and estimates of positive GDP continue to rise.
Yet since the summer swoon and fall drop by the markets there have been numerous false starts. The cost of believing what you want versus what actually is happening is expensive. We constantly warn against trying to jump ahead. Markets do discount the news and get ahead of the conditions good and bad, but this particular situation is much more troubling.
Our country has not faced high inflationary conditions for more than 40 years, and if you remember your history, interest rates rose to dramatic levels. Inflation eventually came down, but with it came high unemployment conditions and weakened demand. It was as if the economy needed a "do over," and that helped the prosperity carry into the next century.
This last week may have seen a decline in prices as the October Consumer Price Index came in slightly lower than expected. That CPI reading induced a roar from the crowd and buying such as we had not seen in more than two years. The remarkable rally that has spread to many sectors and lifted stocks higher may signal a change in character. But then, we are cautious about letting our guard down in this vicious bear market.
There are signs out there of prices starting to decline, but the overall year-over-year numbers are still troubling. And that is how the Fed will craft policy. Hence, we still see more hikes coming and rates elevated for a longer amount of time (into 2024), though maybe the peak rate will not be 6%. But anything above 5% will be a high hurdle for companies to jump. Even if inflation is coming down, we are unlikely to see anything below 3% for a long while, if ever again.