signs of some success in the hous- ing markets, as the sharp increase in home prices appears to be abating. But other than the cost of home and auto loans, rising interest rates are not likely to have a huge impact on overall consumer demand. On the other hand, rising inter- est rates and fears of recession are causing businesses to increase their cautiousness and reduce their spend- ing plans. The ironic result is that supply throughout the economy may become more restricted than demand in this rising interest rate environment. The upshot is that the level of inflation is likely to be vola- tile, and at the same time, it is likely to persist at higher levels than in the recent past.
Unfortunately, the only way the Fed can significantly slow inflation down when the government’s over- all policies are inflationary is with an excessively restrictive monetary policy. As long as the federal govern- ment’s policies entail a combination of over-meddling, overspending, and anti-growth policies and rhetoric, only a massive restriction of monetary policy that drives the economy into a significant recession is likely to put the brakes on inflation. We’re not sure how far the Fed will go, but at some point, when the pain increases enough, we think the Fed will take a breather. We’re “guessti- mating” that inflation will remain in the four to six percent range for the next several years with several large
Disclaimer: The views expressed in this article represent those of the individual author. Stephen Fauer, CFA Stephen Fauer is Chief Investment Officer of Pinnacle Capital Management, LLC in E. Syra- cuse, NY. He has served in that capacity since the firm's founding in 2006. He oversees all separately managed accounts and serves as portfolio manager to the firm's NYSAFE L.P. fund. He is a 1980 graduate from Michigan State University and earned his MBA in Finance from New York University in 1984. swings — up and down — in interim periods. It’s not necessarily what you want to hear, but that’s the outlook as we see it.
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