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After raging to multiple four-decade highs in 2022, inflation has fallen steadily over the past six months. But now, an increasing number of economists and business leaders are worried that the trend won’t last. “I think inflation is going to get sticky in midyear at around 4%,” Mohamed El-Erian, the president of Queens’ College at the University of Cambridge, told Bloomberg on Friday.

I worry about overextrapolating trends. That’s a theme I thought about coming into this meeting. In 2021, we had an epic peaking in conditions, such as zero to negative interest rates and ample liquidity, that made things perfect for the overextrapolation of secular growth. Now we may be over-extrapolating inflation dynamics and forgetting about a lot of long-term trends that are deflationary. Scott made some important points about demographics. Negative demographic trends, high debt, wealth inequality, and the productivity of technology haven’t gone away. They have merely taken a back seat because of all the stimulus jammed into the economy during the Covid pandemic in 2020.

Now central banks are looking at a decade of normalization. Many people expect that once we start to see signs of increased unemployment, the Fed will cut rates dramatically and take us back to quantitative easing. I don’t expect that to happen. The normal or neutral rate of interest is probably higher than the Fed or any of us anticipate. The new normal will be like the old, old normal: When the economy slows, the Fed can probably cut rates from 5%-5.5% to a little less than 3%, but not much below that.

...Third, financial conditions lead me to expect that the Fed will raise interest rates to 5% to 5.5%, and maintain them there. Market expectations that the Fed will cut rates by close to 50 basis points [100ths of a percentage point] in the second half of this year are misplaced.

Q3 2022 is the second quarter in a row management has not commented on the sequential trend in CAC and churn

This excellent figure from Torsten Slok should give pause to anyone who thinks that inflation is driven by particular factors that will soon reverse themselves. The most important transitory factor affecting today's PCE figure is the NEGATIVE effect of the sharply rising dollar