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Fed Is Easing Into Major Regime Shift | Darius Dale
Forward Guidance
Inflation and Recession: Choose One
The Federal Reserve's aims for both 2% inflation and a soft landing are fundamentally contradictory, as history indicates that achieving both is impossible. The analysis of post-war US business cycles shows that inflation behaves as the most lagging economic indicator, typically declining 4-5 quarters after recession onset. In contrast, restrictive policies kick in 5-6 quarters prior to recessions, signifying that corporate profits, liquidity, and employment all deteriorate before inflation begins to drop. Therefore, the view that inflation will decrease steadily without a resulting recession clashes with historical data, which suggests that inflation does not trend downward sustainably without a preceding recession. Investors must recognize this reality, as prevailing Wall Street expectations are misaligned with how inflation typically cycles with recessions.
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