The Fed is cornered – a rate hike risks financial strain on companies, while lowering rates further intensifies inflation, directly hurting consumers.

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In the ever-evolving landscape of the U.S. economy, indicators point to a uniquely challenging environment, with financial conditions currently deemed the most accommodative since the Federal Reserve embarked on rate hikes last year, as highlighted by the Bloomberg US Financial Conditions index. This revelation underscores a perplexing dichotomy with a persistently high Consumer Price Index (CPI) inflation rate of 3.1%.

Delving into the granular aspects of inflation reveals an unsettling reality where essential commodities experience significantly higher price hikes than the headline inflation rate suggests:

  1. Car Insurance Inflation: 19.2%
  2. Transportation Inflation: 10.1%
  3. Car Repair Inflation: 8.5%
  4. Rent Inflation: 6.9%
  5. Homeowner Inflation: 6.7%
  6. Food Away From Home Inflation: 5.3%
  7. Electricity Inflation: 3.4%

November saw a surprising uptick in used car and truck prices, increasing by +1.6%, marking the first monthly rise since May 2023. The prevailing economic narrative further dispels any notion of deflation, instead characterized by what experts term “disinflation.”

While the rate of inflation registers a decrease, the unrelenting rise in prices paints a stark picture of worsening affordability. The strain on consumers is palpable, with hourly wages experiencing negligible growth since 2020, a fact underscored by Bloomberg. This economic paradox is encapsulated by financial writer Jim Grant’s assertion that inflation is ‘not transitory’ but rather a permanent fixture.

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Compounding the challenges is the rise in multiple jobholders, a symptom of the economic stress felt by individuals grappling with the cost of living. High-interest expenses pose an additional threat, as companies find themselves caught in a catch-22 scenario: if the Fed raises rates, companies face financial strain, yet lowering rates further fuels inflation, adversely impacting consumers.

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Inflation is ‘not transitory. It’s permanent,’ says financial writer Jim Grant

Jim Grant, founder and editor of Grant’s Interest Rate Observer, made a bold declaration in an interview with the Fox Business Network just ahead of Tuesday’s November U.S. consumer price index report.

Perhaps best known as the Fed watcher who called the 2007 housing bubble and a financial-markets publisher for 40 years, Grant described inflation as a phenomenon that’s not as temporary as many seem to think.