Inflation looks largely tamed, moving closer to 2%. The US economy is growing at a 2-3% pace. Employment is healthy and wages are now growing above the rate of inflation. As we exit 2024, the US economy has arrived at a calmer place, far out-pacing it's rivals globally with equity markets at an all-time high, even before the post-election surge that already seems to be scaling back in areas. So why are markets expecting a resurgence of inflation?

Part of it is because of the anticipation of the mechanical effect of raising tariffs on imports, tax cuts and additional subsidies for key U.S. industries, which could lead to an inflationary increase in government debt (plus other efforts to bolster economic growth that will also add upward pressure on consumer prices). We may be about to enter the TTDG economy: Tariffs + Tax Cuts + Debt + Growth. Markets seem to think so with the 10-year treasury up almost 23% in 2 months, close to 4.5%, close to July levels.

Already markets have reacted with massive spikes in many equity prices, commodities (except oil that dropped as OPEC just announced the potential for ending their production cut-backs enacted earlier to boost pricing) and crypto. The pre-election market records have been followed with even more gains. This is very good for those invested in the markets. Rapidly increased growth can help offset rising prices, but only if that growth is of benefit to mass consumers, higher wages, which is usually inflationary. As is already being seen in the bond markets. The market is pointing to faster growth and inflation and it’s right more often than not.

So buckle-up. There is only one certainty in markets: change. That, and maybe one other thing. There are lots of experts, economists, etc who predict all sorts of things and often they are proven wrong. So the second certainty about markets is: it all depends.....