#388 Inflation…What About Deflation?

To Cut Or Not To Cut

Federal Reserve Chairman, Jerome Powell, will testify this week to Congress and the Senate. Afterwards, we should have a better understanding of what will happen with rates. However, until a decision is made later this month, it will be all about the Fed. There are two sides to this. Once side that says they should cut rates and another side that says that they should not cut rates. The side that says that they should cut rates is blaming the situation on tepid wage growth, trade war impact, global economic slowdown, deteriorating business investment, declining consumer confidence, and the slowdown in manufacturing activity. The side that thinks the Fed should not cut rates believes that it’s unusual to cut rates with unemployment near record lows, the stock market near record highs, and with short-term interest rates already near a low of 2.5%. It’s a weird spot where the market wants the cake and eat it too so to speak. We have a good economy, but the market also wants the Fed to make cuts as well. That’s a weird combination and you rarely see those two items paired together but until a decision made is made in late July, the market is going to be up and down.


There are a few key indicators to watch on whether the economy is really strengthening or whether the Fed should cut rates. One of the big things we watch is the NFIB, National Federation of Independent Businesses, small business confidence index. In May, the index was expected to drop from 105 to 103. The absolute number of 103 is not as important as the fact that the number is coming down. Small businesses in America, which are the driver of growth, are less confident. This week we should get the report for the Consumer Price Index, inflation, which in May was reportedly supposed to drop from 1.8% to 1.6%. I don’t think anyone thinks that 1.6% inflation is out of control. Both of those numbers that come out this week could support a Fed rate cut because it’s not that they’re fighting inflation but that they’re fighting deflation which we were importing from these developed economies that are slowing down. Our economy is doing great but we’re in a global economy. The least developed economies such as the European economies and other larger more developed countries are growing much slower or even shrinking, so, we were importing that deflation here, which is keeping our price down. The Fed is there to fight inflation but what is there to fight at this point? We need to keep in mind that people in Europe are buying our treasury bonds because even with the currency exchange it is still beneficial because our rates are a lot higher. The 10-year German bond is negative. Our 10-year is 2.05% which seems low but compared to a negative rate, it’s good. We have room to bring rates down and still be very attractive to the rest of the world if needed.

India On The Rise

Over the next two years, we think we should keep an eye on India. The reason we are watching them is because we think they have the potential to provide a nice prop up for the global economy that has been weak due to the trade war and tariffs. In 2014, India’s economy was the 10th largest in the world and this year it’s going to surpass the UK as the 5th largest. That’s a big jump in a 5 year period. Their finance minister said as a goal for the nation, they are at $3 trillion in GDP and in five years they want to be at $5 trillion. A lot of that’s going to be capital infrastructure and capital goods spending which are two areas that the U.S. does very well in. That’s an economy that we’re really watching because we believe that they very much on the rise. This proves our theory that sometimes the headlines are not the main news.

Job Growth

The American economy is doing well however, one fear that people have had is the unemployment rate. The June jobs number came out at a hefty 224,000 new jobs created. This report has shown the best job growth since January. That report coming out stopped any negative talk surrounding job growth being a drag in the markets. The biggest increase we saw was in healthcare. We have recently talked about the economy growing and by doing so we said we thought it needed to continue pushing for development in the advanced technology space. The jobs report showed that computer system design had a big jump in jobs. This is a unique portion of the job growth that we’re starting to see companies embrace and could add some positivity soon.


Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®
Senior Vice President
Wealth Consultant
Email Bobby Norman here

Ashley Page, JD, MBA
Senior Vice President
Wealth Consultant
Email Ashley Page here

Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here

Adam Vansant
Associate Vice President
Wealth Consultant
Email Adam Vansant here


Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

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