What I Learned This Week

Is global inflationary momentum building? Are you ready (continued)? Will "America First" provide an economic boost for emerging markets?

Both the New York Fed’s Underlying Inflation Gauge (UIG) and the five-year UST/TIPS breakeven rate are signaling that the inflation bounce since last autumn’s hurricanes is anything but transitory. The UIG increased from 2.96% in November to 2.98% in December—signaling trend CPI inflation of 2.2% to 3.0%—while the 5-year breakeven rate is close to breaking-out above its horizontal resistance level of 1.96%, as shown in the following charts. An acceleration of global growth could make the weakening dollar self-reinforcing, because of the greenback’s position as an international funding tool. And, if the dollar weakens further, it could propel inflation metrics higher, surprising market partic…

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