For more than two years, inflation and interest rates have been on the minds of many Americans – and of citizens of most countries in the world.
Inflation figures in the post-COVID world have reached highs usually unimagined in developed economies and peaked at 9.1% in June 2022 and at 11.5% in the EU in October of the same year.
The sky-high inflation sent the FED – and other central banks – on a rate-hiking spree that ended with the U.S. interest rates at their multi-year highs of between 5.25% and 5.50%.
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Last year – 2023 – brought a reprieve, as the FED stopped raising rates and inflation started cooling. It gave investors hope that 2024 will inaugurate a strong bull market.
Many experts are, however, significantly more cautious, and one – the Founder and CEO of GLJ Research, Gordon Johnson – believes the prices of goods will start shooting up again.
Why does Johnson forecast CPI reheating?
On Monday, January 29, Gordon Johnson took to X to explain that the figures tracking financial activity in the U.S. to gauge the national financial conditions in money markets, debt markets, equity markets, the banking system, and others demonstrate that they are ‘loosest’ they’ve been since November 2021 – before the FED started hiking interest rates.
Generally speaking, looser financial conditions indicate that inflation is already high or that it is about to start rising.
Johnson continued by looking at historical data and stated that it demonstrates that the current period of falling inflation might merely be a lull before the CPI starts registering ever-higher numbers again – perhaps even overshadowing the 9.1% recorded in June 2021 – and bringing the U.S. closer to its historical interest rate peaks of 20%.
Markets react to inflation and interest rate uncertainty
In the final quarter of 2023, fears of a looming recession finally gave way, and the trimester was generally marked by optimism. The crypto markets were feeling bullish on the prospects for a spot Bitcoin (BTC) exchange-traded fund (BTC ETF), and many cryptocurrencies rose to many-year highs as a result.
Stock market investors were optimistic, given the falling inflation rates and broad expectations that the FED will start cutting rates early in 2024.
The new year, however, brought a turn of the tide. The consensus on rate cuts changed, instead warning that it is possible they will remain level throughout the year – and certainly in the first half of the year.
The stock market’s reaction was mixed, with multiple major firms continuing their relentless march upward but others entering a losing streak. The crypto market, despite the ETF hopes getting fulfilled, also entered a significant downturn.
Finally, even without Johnson’s grim predictions of a resurgent high inflation rate, major banks have been generally cautious about the market’s 2024 prospects – with a major exception to the trend when it comes to the technology and particularly the artificial intelligence (AI) sector.
Additionally, while many analysts still expect a strong 2024 overall, most now warn that its first two quarters will be filled with trials, tribulations, and temporary stock market drops.
