The Fed may reach the tipping point!
The tipping point
Since most historic examples show, that a recession is deflationary we should expect to see a similar development right now. The main indicator for this has been the fact that commodity markets have been signalling a recession since spring of this year. When looking at credit markets and risk appetite, it feels like 2008 again. The recession could also force the Federal Reserve to pivot and stop hiking rates.
Stagflation and de-globalization
We are currently sliding into stagflation. The reasons are very similar to those back in the 1970s – supply issues. The main problems right now were lockdowns and the reaction to Covid, the supply chain issues created by these measures, and now the war in Ukraine and the resulting split of the world into two blocks. While governments finally seem to treat Covid like the seasonal flu in most countries, the war in Ukraine and de-globalisation will be not as easy to resolve. Both these developments are inflationary. The recent weaponization of the US-Dollar is only accelerating this process.
A repeat of 2008?
Credit impulse has been nosediving at an even worse rate than in 2008. Credit growth and similar indicators all tell the same story. This is also a highly deflationary environment, something that many people do not have on their radar.
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