On Friday, the exposing of the monstrous lie that inflation has peaked was a game changer. The reaction in the markets was a swift and fundamental economic and financial market relationships altered.
US Inflation for May 2021 came in at 1% for the month vs expectations of 0.7% or 8.6% vs expectations of 8.3%. CPI came in at 0.6% for the month vs expectations of 0.5% or 6.0% versus expectations of 5.9%.
Over the weekend, there is a lot of more chatter that inflation is going to continue going higher – including on mainstream financial channels such as CNBC – over the coming months.
This has put immediate pressure on the US Federal Reserve who meets on Tuesday-Wednesday US time to be more aggressive in rising rates. This could include by raising rates by 75 or 100 basis points. It is important to note that quantitative tightening is expected to commence this week.
The exposing of the monstrous lie that inflation has peaked has now resulted in a breakdown of the financial system. All three risks inflation risk, credit risk and liquidity risk are now all coming into play.
There will be more pressure on central banks to deal with inflation risk – if they do, this rises credit and liquidity risks – which can easily result in markets freezing and economic agents (households, corporations, banks and government) defaulting on debt.
A material credit and liquidity risk event can easily plunge the financial system into a new financial crisis. Any attempt to prevent this will lead to soaring stagflation – with a major crash in the share market and cryptocurrencies.
The timetable for the pivot (which Adams is anticipating) has just dramatically quickened. All eyes on what the FOMC does on Wednesday, US time.
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