As of June 10, the inflation rate was as high as 8.6%, which is a 40-year high. That was much higher than expected. I thought we might start to see things slow down a bit, though if the Fed raises another 50 basis points later this month, we likely will.

The only real way to stop inflation is for the government to stop printing money. In economics, the M2 is a measure of the money supply that includes cash, bank deposits, and other forms of money in motion. In the decade before 2020, the M2 increased 6% annually, a very moderate and healthy growth pace. When COVID hit and the government started sending out relief checks, the M2 money supply increased by over 40%. That only spells one thing: inflation.

Despite this, we don’t expect a recession to hit in 2022. In our modern economy, two conditions need to be met for a recession to occur, and our current market fails to meet them:

1. Earnings recession. The graph at 3:05 in the video above shows that profit growth turns negative just before a recession. There are gross slowdowns in Europe, but earnings remain relatively strong. 78.5% of all companies that reported their numbers had positive growth in the first quarter of this year. For example, The S&P 500 expected a 5.5% profit growth, but it actually rose by 9.3%, and revenues increased by over 12%.
2. Backup in the unemployment rate. At 4:24 in the video, there’s a chart that shows the Sahm Rule Recession Indicator. This indicator suggests that the labor market will remain strong. There are currently 1.7 jobs available for each worker in the economy, so it doesn’t look as though a recession is on the horizon.

If you have any questions about inflation or its impact on the market, don’t hesitate to give us a call or send us an email. We’d love to hear from you

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