Investors Shocked

Inflation concerns have analysts worried the Fed is behind the curve and the economy is overheated. Bloomberg asks How Worried Should You Be?

For almost a decade, investors have waited patiently for any hint of inflation in the U.S. economy, a sign the recovery can sustain itself without emergency stimulus from the Federal Reserve. Now they’re getting it, and many are shocked at the reaction.

“It’s kind of a strange time and we seem to be driven by a fear of what everyone wants, and that’s higher rates,” said Joe “JJ” Kinahan, the chief market strategist at TD Ameritrade. “Higher rates confirm a stronger economy, and the market was very afraid of that all week long. And that’s been a big reason for selling.”

Strategies that worked for years buckled in the rout. So-called short-volatility, in which traders bet that share turbulence will remain restrained, reversed, as Friday’s 29 percent spike in the Cboe Volatility Index triggered a 13 percent plunge in the ProShares Short VIX Short-Term Futures exchange-traded fund. About 27 million shares changed hands, the most since the Brexit vote.

Wrong Fear


Inflation is the wrong fear. Sure we might be in a temporary bout right now. But collapsing asset prices will quickly turn fears of inflation to fears of deflation, and the next round of QE likely will not help.

Related Articles

Mike "Mish" Shedlock

Trump Goes After Fed but Proclaims "I Don't Want to Meddle": Trump Translated

Citing a lack of inflation, Trump thinks the Fed is hiking interest rates too fast.

Voters Dissatisfied (But They Don't Want Change)

In 9 of 10 close Senate races, voters only approve of 1 candidate. But do voters want change? No!

Opinion Nearly Unanimous: Inflation Has Arrived

Opinion is nearly unanimous. Inflation is coming and it won't be short-lived.

Economists Think Inflation Will Rise Sharply in 2018: They're Wrong

Let's investigate six reasons economists think inflation is about to pick in 2018, and why I think they are dreaming.

Japan Gives Up On Inflation, Now Wants Deflation (Sort Of) to Offset Tax Hikes

Today seems straight from the Twilight Zone: First the PPT and now Abenomics in full reverse.

Imaginary Wage-Inflation Conundrum

Economists are puzzled over the wage growth conundrum. Wages were supposed to rise significantly. They didn't. Why?

Rethinking the Fed's 2% Inflation Target: Spotlight On an Absurd Debate

Is the Fed's 2% inflation target too high or too low? That's the big debate now amongst central bankers.

Fed Worried About Lack of Inflation, Stock Market Bubble (Sort Of)

FOMC minutes show Yellen is no longer convinced that low inflation is transitory. Other members mention bubble concerns.

Inflation Coming? How About Deflation?

Economists expect higher inflation based on rising producer prices. But will producer prices feed consumer prices? When?