There is a lot of speculation and opinions on what a Trump Presidency will mean on the markets, interest rates, housing, etc., so I thought I would take a moment to share some insights. Over the past few years the Federal Reserve has remained cautious and held off raising rates again and again and when they do raise them they are expected to raise them very slowly, as inflation has remained in check.
The US is not facing deflation, but the overall inflation statistics are and have remained, very low.
Keep in mind, though, that the money supply is accelerating, the jobs market looks tight (participation is at a 40-50 year low, meaning there is a shadow labor pool ready to work at the right wage). Underneath the calm exterior there are inflationary clouds on the horizon.
We have seen energy prices dropping and stabilizing and we have seen housing prices and costs increase over the last 6 years, all impacting the overall economy.
Then again, consider that
- housing costs are up
- medical costs are up
- and now add in the Trump factor of higher wages and re-entry into the labor force workers who have been on the sideline; wage growth will accelerate.
Now some of these factors do not cause inflation and instead money causes inflation.
Inflation is too much money chasing too few goods.
Over the last 7 years, banks have been lending out at an expanded rate of 9% and more money brings more inflation. I believe we have hit the end of the road on low interest rates and inflation being in check. In 2017 we will see inflation increasing, with a corresponding increase in rates. I have been saying this for a while and still feel the fundamentals signal rising rates.