Jim Grant, founder and editor of Grant’s Interest Rate Observer, made a bold declaration in an interview with the Fox Business Network just ahead of Tuesday’s November U.S. consumer price index report.
Perhaps best known as the Fed watcher who called the 2007 housing bubble and a financial-markets publisher for 40 years, Grant described inflation as a phenomenon that’s not as temporary as many seem to think.
“Whatever this number we’re about to see reveals, inflation is, importantly, it’s not transitory,” Grant said. “It is permanent in that you never regain the purchasing power you have lost to inflation. There’s no such thing as deflation in modern monetary life” within the U.S.
“The important thing is that the loss of purchasing power since 2020 is in the low-teens, and that is not going to be recaptured,” he said.
After he spoke, the November CPI report showed price gains continued to remain sticky, with core consumer prices rising 0.3% on a monthly basis and 4% on an annual basis. Core readings strip out food and energy to provide a purer read on underlying inflation trends, which Federal Reserve policy makers care most about.
The most likely trajectory of inflation remains one of the most important questions facing financial markets at the moment, although whether it can accurately be described as permanent is a matter for debate. Fed funds futures traders are counting on price gains to ease by enough for the central bank to start cutting interest rates in 2024.
After the CPI report, 1-month
BX:TMUBMUSD01M
through 30-year Treasury yields
BX:TMUBMUSD30Y
were little changed as investors and traders looked ahead to Wednesday’s Fed policy decision and updated interest-rate projections. Traders priced in a 50% likelihood of a quarter-point Fed interest rate cut by May. And all three major U.S. stock indexes
DJIA
SPX
COMP
were mostly higher in New York morning trading.
A recent survey from the New York Fed showed that Americans are feeling more optimistic that inflation will cool in coming months, but they expect it the process to take longer.
