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Much to the chagrin of many progressives, the Build Back Better Act’s price tag was trimmed from the initial $3.5 trillion to $1.85 trillion, and capital gains, individual, and corporate tax rates will likely not be raised. It appears that the market is warning the Fed that it is at risk of falling behind the curve on inflation.Ĭongressional Democrats’ ambitious reconciliation bill took some unexpected turns in recent weeks. Investors have priced in two rate hikes by year-end 2022, which is likely ahead of the Fed’s policy roadmap.

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Higher inflation expectations appear to have become mainstream as the 5-year breakeven inflation rate soared to nearly 3%, the highest levels in this data series going back to 2002. The supply crunch has also resulted in hoarding as well as double-ordering, further fueling upward pricing pressure. With magnesium being a key ingredient in aluminum alloys, a decline in China’s magnesium exports is threatening the world’s aluminum supply, which could disrupt everything from vehicle production to food packaging. For example, China, which has a near-monopoly for manufacturing magnesium, has materially cut back this power-intensive production.
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The sudden scramble for fossil fuels, from coal to natural gas, across Europe and Asia not only sent commodity prices higher, but also put the butterfly effect into full swing – the energy crunch is leading to shortages in unexpected places across the supply chain. The S&P 500 Index shook off its September decline and surged to new highs as if these twin threats would have little negative impact on the economy and corporate profits. For financial markets, I suppose it was a toss-up between Vengeful Fossil Fuels and Sticky Inflation, although investors were not spooked at all, at least for now. BACK TO THE FUTURE An Era of Scarcity’s Uninvited ReturnĪccording to Google’s Frightgeist website, the most popular costumes for Halloween 2021 were witches, rabbits, dinosaurs, Spider-Man, and Cruella de Vil.
