Aoifinn Devitt – Chief Investment Officer
Markets received today’s CPI numbers with delight and some relief. The news that US consumer price inflation had risen only 7.1% annually, and only 0.1% month-on-month provided clear evidence of inflation easing and the monthly change was the lowest since in December 2021. While still meaningfully above the 2.1% average pre-pandemic price rise, the new figures point to a moderation in what has seemed like relentless pricing pressure since the beginning of the year, and will support the expectations for the Fed to decelerate this week and raise rates by only 50 bps.
Bonds and stocks rallied, and as we look back on a year of turmoil, we can see that the economy has certainly grown more shock-resistant. It is difficult to imagine what other inflation shocks could lie in store in 2023 – given that 2022 was a battery of challenges, from war to supply chain shocks to post-pandemic resets. Now, the somewhat messier work of living with higher interest rates and still nagging inflationary pressures begins, and markets seem to be figuring out their moods in real time. While it is clear that there is “more work to do” in the words of President Biden, there is some sense that the path that inflation is adopting is the right one.
Elsewhere, in the Bahamas, Sam Bankman-Fried was arrested and accused of eight counts including conspiracy and fraud in the aftermath of the collapse of FTX. The sudden development will mark the beginning of some closure for what seemed like a gaping, open wound of yet another financial market anomaly. As in the case of other brazen frauds and Ponzi schemes, there was a sense of incredulity at the lapses in due diligence and governance that led to the spectacular rise and fall of FTX, as a trail of financial market luminaries caught in the mess. This first step to address the matter, towards holding individuals accountable, will be received as a breakthrough of sorts.
In news of other breakthroughs, the US Department of Energy announced this week that a team from its Lawrence Livermore Lab in California had achieved nuclear fusion ignition, which could change the future of clean power. The possibility of sourcing clean and theoretically limitless energy from nuclear fusion is called a “net energy gain,” and could point to a lower reliance on fossil fuels and the environmental impacts.
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