Prices Will Continue To Move Higher
Prices will continue to move higher so long as the money supply (pictured below as M1) continues to grow.
It is fine to grow the money supply to finance private sector productivity. Yet, when the money supply grows to finance Government spending beyond what it collects in tax revenue, we have a problem. Specifically, the value of the Dollar erodes and the price of goods and services rise as a result.
The chart below plots M1 vs. CPI. I can’t think of a reason as to why M1 will shrink given the Fed’s tone and given the likely spending that will come out of a Trump or Harris administration.
The Treasury market is aware of the United States’ spending problem, which is why the 10-year yield crossed 4% weeks ago as the Fed manipulated the front-end of the yield curve lower.
