Articles

U.S. approves $10bn+ arms sales to Taiwan

• Package includes HIMARS, ATACMS, howitzers and drones
• Likely to inflame U.S.–China tensions
• China defence stocks jump on news
• Raises regional security risks

The Trump administration has approved a sweeping package of arms sales to Taiwan valued at more than $10 billion, sharply escalating military support for the island and injecting fresh tension into already strained U.S.–China relations.

The U.S. State Department announced the sales late Wednesday, coinciding with a nationally televised address by President Donald Trump, although the president did not reference China or Taiwan in his remarks. The package comprises eight separate agreements and represents one of the largest single tranches of U.S. military assistance approved for Taiwan.

At the core of the deal are 82 High Mobility Artillery Rocket Systems (HIMARS) and 420 Army Tactical Missile Systems (ATACMS), together valued at more than $4 billion. The systems mirror weaponry supplied by Washington to Ukraine during its conflict with Russia and are designed to enhance Taiwan’s long-range strike and deterrence capabilities. The package also includes around $4 billion worth of self-propelled howitzer systems and associated equipment, along with drones valued at more than $1 billion.

The announcement is likely to provoke a sharp response from Beijing, which considers Taiwan a breakaway province and has consistently opposed U.S. arms sales to the island. Such moves are typically met with diplomatic protests, military signalling and, at times, retaliatory measures targeting U.S. interests or companies.

Markets in China appeared to anticipate heightened regional tensions. China’s CSI Defence Index rose more than 2% to a two-month high following news of the approvals, reflecting investor expectations of increased domestic defence spending and procurement in response to rising geopolitical risks.

For Washington, the package reinforces a strategy of bolstering Taiwan’s defensive capabilities without formally altering long-standing policy frameworks. For Taiwan, the systems enhance deterrence but also raise the stakes in cross-strait relations at a time of elevated military activity in the region.

While the arms sales are unlikely to trigger immediate market dislocation beyond the defence sector, they add to a broader backdrop of strategic rivalry that continues to shape regional security, trade flows and investor sentiment across Asia.

This article was written by Eamonn Sheridan at investinglive.com.

Trump announces “warrior dividend” for service members

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U.S. President Donald Trump said more than one million U.S. service members will receive a special one-off payment before Christmas, announcing what he described as a “warrior dividend” worth $1,776 per person.

Speaking at a campaign event, Trump said the payment would be made to every active-duty service member, framing the move as both recognition of military service and direct financial support. The amount, a reference to the year of American independence, was presented as symbolic as well as practical, delivering cash support ahead of the holiday period.

While details around funding and implementation were not immediately provided, the proposal carries clear fiscal and economic implications. A payment of this scale would amount to a stimulus injection of roughly $1.8 billion into household incomes, concentrated among a group with a high propensity to spend. Delivered before year-end, the payments would likely provide a short-term boost to consumer spending, particularly in retail and services sectors tied to holiday demand.

The announcement also fits within a broader pattern of using targeted fiscal transfers as an economic and political tool. Direct payments have proven effective in quickly supporting consumption, even when modest in size, and can help cushion households against cost-of-living pressures without requiring broader structural policy changes.

From a policy perspective, the proposal may raise questions about fiscal discipline and precedent, particularly if similar payments are extended to other groups. However, supporters may argue that the targeted nature of the dividend limits its inflationary impact compared with broader stimulus measures, while reinforcing support for military personnel.

Markets are unlikely to view the proposal as macro-significant in isolation, given its relatively small scale relative to the U.S. economy. Nonetheless, it adds to the broader narrative of renewed fiscal activism and the willingness of policymakers to deploy direct cash transfers as both an economic lever and a political signal.

Further clarity on timing, funding mechanisms and legislative backing will be required before the proposal can be fully assessed.

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Trump has added more, promising to announce the next chair of the Federal Reserve ‘soon’. Trump says the new Fed Chair will believe in lower interest rates ‘by a lot’. Bad grammar, but a clear message of what Trump wants regardless.

This article was written by Eamonn Sheridan at investinglive.com.

Honda to suspend production in Japan and China

• Company cites ongoing chip shortages
• Demand conditions may also be a factor
• Shares fall on renewed uncertainty
• Output recovery risks persist

Honda Motor Co. is set to suspend vehicle production across parts of Japan and China in the coming weeks, underscoring continued fragility in global automotive supply chains and raising fresh questions about demand conditions in key markets.

The Japanese automaker said it will halt output at domestic plants on January 5 and 6, while production at all three Guangqi Honda joint-venture facilities in China will be suspended from December 29 through January 2. Honda cited ongoing semiconductor shortages as the primary reason for the stoppages, a reminder that chip supply disruptions continue to weigh on manufacturing schedules despite earlier signs of improvement.

The move comes as a setback after Honda had indicated production was expected to normalise from late November. Instead, the latest suspensions suggest that supply constraints remain unresolved, complicating efforts to restore output volumes and stabilise inventories.

However, the interruptions may also prompt scrutiny of underlying demand conditions. Auto demand in parts of Asia has softened amid higher borrowing costs, cautious consumer spending and uneven economic momentum. In that context, temporary production halts can serve a dual purpose, helping manufacturers manage inventories and align output more closely with sales trends. While Honda has not explicitly pointed to weaker demand, the overlap between lingering supply issues and a more challenging demand backdrop suggests the stoppages may reflect a broader recalibration rather than purely logistical disruption.

The announcement weighed on investor sentiment, with Honda shares falling around 1.5% in Tokyo trading following media reports. The market reaction reflects concern that prolonged supply constraints — combined with softer demand — could continue to cap earnings momentum into the new year.

China remains a critical market for Honda, both in terms of sales volumes and manufacturing scale, making the suspension of its joint-venture plants particularly notable. More broadly, the episode highlights how global automakers remain exposed to both supply-side bottlenecks and cyclical demand risks, even as the industry adapts by prioritising higher-margin models and adjusting production mixes.

I’m just gonna stick to their bikes 😉

This article was written by Eamonn Sheridan at investinglive.com.

The TL;DR:

• Morgan Stanley expects CPI to confirm firm inflation pressures
• Core CPI seen near 3.0% y/y in November
• Shelter and goods prices remain resilient
• Data limitations reduce monthly detail
• Supports cautious Fed policy outlook

U.S. consumer price data due on Thursday, December 18, is expected to confirm that underlying inflation pressures remain firm, according to Morgan Stanley, even as data limitations complicate interpretation of the latest release.

In a note previewing the report, Morgan Stanley said it expects core inflation to show continued resilience, driven by a rebound in shelter costs and ongoing firmness in goods prices. The bank estimates that core CPI inflation averaged around 0.28% month-on-month across October and November, a pace that would lift core inflation to roughly 3.0% year-on-year in November.

Headline inflation is also expected to remain elevated, averaging around 0.26% m/m over the same two-month period, reflecting similar underlying strength. Morgan Stanley said these readings point to persistent inflation momentum that remains inconsistent with a rapid return to the Federal Reserve’s 2% target.

However, the November CPI release comes with an important caveat. Due to the government shutdown, individual monthly prints for October and November will not be published. Instead, markets will receive only a November price level, significantly reducing transparency around month-to-month inflation dynamics. While this limits granularity, Morgan Stanley said the broader signal still points to firm underlying pressures.

Shelter inflation is expected to rebound after a period of moderation, reflecting the well-known lag between market rents and official inflation measures. Goods prices, which had previously contributed to disinflation, are also expected to remain resilient, suggesting that inflation pressures are not confined solely to services.

Morgan Stanley cautioned that the lack of detail may temper market reactions at the margin, but said the overall message should reinforce the Federal Reserve’s cautious approach to policy easing. With core inflation tracking around 3%, the data are unlikely to provide policymakers with the confidence needed to signal an imminent shift toward rate cuts.

In Morgan Stanley’s view, even a technically constrained CPI release is likely to validate the narrative that inflation remains sticky, keeping pressure on the Fed to maintain a restrictive stance into early 2026.

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Meanwhile, the Wall Street Journal have published their survey of expectations:

The Journal’s noted Fed watcher, Nick Timiraos with his summation:

This article was written by Eamonn Sheridan at investinglive.com.

President Donald Trump has been presented with a draft manuscript by prominent constitutional lawyer Alan Dershowitz examining whether the U.S. Constitution definitively bars a president from serving a third term, reopening a long-settled legal and political debate around presidential term limits.

The Wall Street Journal (gated) carries the report.

According to Dershowitz, who previously represented Trump during his first-term impeachment proceedings, the president received and discussed the draft during a recent Oval Office meeting. The forthcoming book, titled “Could President Trump Constitutionally Serve a Third Term?” and slated for publication next year, argues that while the Constitution clearly limits presidents to two elections, it may be ambiguous on other pathways to a third term.

“The Constitution is not clear on whether a president can become a third-term president,” Dershowitz told The Wall Street Journal, emphasising that the question is less about electoral limits and more about succession and procedural outcomes. Trump, he said, treated the discussion as an intellectual exercise and moved on to other topics, adding that he does not believe the president intends to pursue a third term.

Publicly, Trump has maintained that the Constitution is “pretty clear” that he cannot run again, a position echoed by White House chief of staff Susie Wiles in a recent interview. However, comments from other administration figures have kept the issue alive. White House spokeswoman Abigail Jackson said the country would be “lucky” to have Trump serve for a longer period, stopping short of endorsing a legal pathway.

Dershowitz’s book outlines several hypothetical scenarios, including one in which a third election could ultimately be decided by Congress if Electoral College members abstain from voting. Such an outcome would be unprecedented, and the National Constitution Center notes that elector abstentions have been extremely rare and never resulted in a congressional decision.

Legal scholars remain sceptical. Hofstra law professor James Sample described the Electoral College scenario as “absurd,” though he outlined a more plausible, if highly unconventional, route involving allies winning the presidency, resigning, and elevating Trump through the line of succession.

We’ve all been following along with Trump’s economic management since he resumed office in January this year. Policy volatility has been reflected in market volatility, rising inflation, and slowing job growth. Seven more years of this may lie ahead.

This article was written by Eamonn Sheridan at investinglive.com.

TL; DR summary:

• New Zealand GDP rebounded more than expected in Q3

• Production-based GDP rose 1.1% q/q vs 0.9% forecast

• Expenditure-based GDP up 1.3% q/q, also beating estimates
• Annual-average growth remains negative

  NZD reaction modest, reflecting backward-looking nature of data

The investingLive economic calendar gives both the expected and priors if you’d like to keep track:

More detail:

New Zealand’s economy recorded a stronger-than-expected rebound in the September quarter, with official data showing solid gains across both production- and expenditure-based measures.

The quarterly bounce points to a period of improving activity momentum after earlier weakness, likely supported by resilient household spending and a stabilisation in domestic demand conditions through late winter. However, the broader picture remains more mixed. On an annual-average basis, production-based GDP was still down 0.5% in Q3 from a year earlier (i.e. Q3 2025 vs. Q3 2024), underscoring that the economy has yet to fully recover from the earlier downturn.

Market reaction was muted. The New Zealand dollar briefly ticked higher following the release, with NZD/USD popping only a handful of points before settling back, reflecting limited conviction that the data materially alters the near-term macro or policy outlook.

That restrained response highlights an important caveat around GDP data: it is inherently backward-looking. Today’s release largely captures economic conditions from several months ago, before more recent shifts in financial conditions, global growth dynamics, and evolving monetary-policy expectations. In a fast-moving environment, quarterly GDP tends to confirm what has already happened rather than signal what is happening now.

GDP also remains prone to revisions, sometimes meaningful ones, which can further temper its value as a real-time guide for investors or policymakers. As such, while the Q3 upside surprise adds context around New Zealand’s recent growth trajectory, markets are likely to place greater weight on higher-frequency indicators — particularly inflation, labour-market data, business surveys and financial-conditions metrics — when assessing the Reserve Bank of New Zealand’s next move.

This article was written by Eamonn Sheridan at investinglive.com.

• End of Day Summary: Tech Rout Batters S&P 500 and Nasdaq
• Silver Price Analysis: XAGUSD Hits Record Highs (Up 130% in 2025)
• The US treasury sells $13 billion of 20 year bonds at a high yield of 4.798%
• What if the chart of US oil production is wrong?
• Oracle is getting crushed again and is down nearly 50% since September
• EIA weekly US crude oil inventories -1274K vs -1066K expected
• China won’t need ASML’s chip-building machines for long
• Funny how none of the Fed candidates are talking about the one-off drop in oil prices
• Fed’s Waller: Jobs market is very soft, current payrolls growth not good
• investingLive European FX markets wrap: UK inflation cools just before BOE decision
• USDINR Technical Analysis: RBI intervenes to stop the Rupee selloff. Another failed try?
• Eurozone November final CPI +2.1% vs +2.2% y/y prelim

Key Takeaways for markets today

• USD/JPY Rally: The Yen was the biggest mover vs the USD, pushing USD/JPY up +0.65% to 155.71. The BOJ will announce its interest rate decision on Friday.

• Sterling Slump: GBP/USD fell -0.34% to 1.3375 after softer-than-expected UK inflation data cemented bets for a BoE rate cut tomorrow.

• Commodity Strength: Silver surged it is up 4.34% and Oil rallied +2.92%, while Gold posted a gain of 1%

USDJPY: The Big Mover

The Japanese Yen struggled significantly today, finishing as the worst of the major currencies against the dollar. The pair rallied +0.65% to trade at 155.71, extending from lows of 154.52 earlier in the session.

• The Catalyst: While Machinery Orders and Exports beat expectations, Imports missed. However, the focus remained on policy. The Bank of Japan will enter interest rate decision with expectations of a 0.25% rise in the targeted rate

GBPUSD: Inflation Data Weights on the Pound

The GBPUSD came under pressure earlier in the day after UK CPI data missed expectations but rebounded most of its sharp declines. The low for the day reached 1.3312. The current price is trading at 1.3375 with a high for the day near 1.3426.. Technically, the price is ending the day back above its 200 day moving average at 1.3346 and its 100 day moving average at 1.3357.

• The Data: Headline CPI eased to 3.2% (vs. 3.5% expected), driven largely by falling food prices. Core CPI dipped -0.2% month-over-month.

• The Impact: The report solidified market expectations for a 25 basis point rate cut from the Bank of England when the announcer interest rate decision tomorrow, with markets now assigning a ~99.7% chance of a cut, up from 91% pre-release.

EURUSD: Flat Ahead of the ECB

The EURUSD moved lower in sympathy with the Grecovered most of the declines in the North American session to end the day marginally lower by -0.06% .

• The Outlook: Traders appear to be in a holding pattern ahead of Thursday’s ECB meeting, where rates are expected to remain unchanged. However, economic clouds persist as the German Ifo index hit its lowest level since May. Nevertheless expectations are for ECB’s Lagarde to reiterate the bank will remain data -dependent

USDCAD: Technical Buyers Gain Control

The USD/CAD pair rose +0.21% to 1.3783, but the technical story is the highlight.

• Chart Watch: After multiple failed attempts where sellers defended the 100-hour moving average, buyers finally broke above this key resistance level today. The focus now shifts to whether they can sustain this momentum toward the 1.3800 level (200-hour MA). So far, that moving average has held resistance, putting the pair in a more neutral position above its 100 hour moving average at 1.3768, but below its 200 hour moving average at 1.300

Fed Governor Waller Signals Need for Rate Cuts Amid Soft Labor Market

Fed Governor Christopher Waller delivered a bearish assessment of the current economy, specifically characterizing the jobs market as “very soft” with payroll growth that is “not good.” He argued that this labor market weakness supports the case for continued interest rate cuts, estimating that the current policy rate remains 50 to 100 basis points above the neutral level. While acknowledging that inflation sits slightly above target, Waller expressed confidence that price pressures are under control, expectations remain anchored, and inflation should decline over the next few months. He advocated for proceeding at a “moderate pace” rather than taking dramatic action, and noted that while tariffs likely did not cause the current labor weakness, he remains hopeful for a stronger economic year in 2026.

Commodities & Crypto

• Silver: The standout performer, rallying $2.70 or 4.25% at $66.44

• Oil (USOIL): Gained $1.58 and $56.85.

• Gold: Ticked higher by $42.92 or 1.0% at $4345

• Bitcoin: felt $-2066 or -2.35% to $85,775.

Stocks slumped led by the tech/AI/chips

• Dow Jones Industrial Average (DJI): Down -243.51 points (-0.51%) to 47,870.75.

• S&P 500 (SPX): Down -78.34 points (-1.15%) to 6,721.92.

• Nasdaq Composite (IXIC): The biggest loser, falling -410.71 points (-1.78%) to 22,700.75.

• Russell 2000 (RUT): Small caps were not spared, dipping -28.72 points (-1.14%) to 2,490.58.

This article was written by Greg Michalowski at investinglive.com.

The U.S. Treasury sold $13 billion of 20 year bonds at a high yield of

• WI level at the time of the auction 4.799%
• Tail -0.1 bps vs 6 month average of -0.5 bps
• Bid to cover 2.67X vs 6 month average of 2.65X
• Dealers 12.57 vs 6 month average of 11.0%
• Directs 22.24% vs 6 month average of 25.3%
• Indirects 65.19% vs 6 month average of 63.7%

AUCTION GRADE: Given the results compared to the 6-month average, I give the auction an average grade of C. Not good. Not bad. Just average.

The 20-year Treasury bond occupies a unique and somewhat awkward position on the US yield curve compared to the “benchmark” 10-year and 30-year issues. It is often referred to by traders as an “orphan” issue.

1. The “Orphan” Status

Unlike the 10-year note (the global benchmark for risk-free rates) and the 30-year bond (the primary instrument for long-duration pension hedging), the 20-year bond lacks a natural, dedicated buyer base.

• 10-Year Role: Used by everyone—mortgage lenders, corporate bond pricers, and foreign central banks—as the primary reference point for the US economy.

• 30-Year Role: heavily favored by pension funds and insurance companies who need “long duration” assets to match their long-term liabilities (like payouts due in 30+ years).

• 20-Year Role: It falls in a “no man’s land.” It is too long for tactical traders who prefer the 10-year, but not “long enough” for pension funds who prefer the convexity and duration of the 30-year.

2. The Yield Anomaly (The 20s-30s Inversion)

Because of this “orphan” status, the 20-year bond typically trades with a liquidity premium, meaning investors demand a higher yield to hold it because it is harder to sell than a 10-year or 30-year bond.

This often results in a “kink” in the yield curve where the 20-year yield is near or even inverted to the 30-year yield.

This phenomenon occurs because demand for the 30-year is structurally higher (due to pensions), pushing its price up and its yield down, while the 20-year languishes with less demand, keeping its price lower and yield higher.

3. Liquidity and Trading

• Volume: The 20-year bond sees significantly less trading volume than the 10-year and 30-year issues.

• Volatility: Due to lower liquidity, the 20-year yield can be more volatile and prone to erratic moves during market stress compared to its neighbors.

Overview: The Auction Process

The US Department of the Treasury sells bills, notes, and bonds to finance the US government’s debt. These auctions are closely watched by traders (Forex, Equities, and Bond traders alike) because they provide a direct read on the demand for US assets and the direction of interest rates.

When the auction results are released, the market immediately compares the actual data against the “Pre-Auction” expectations.

Key Metrics for Auctions of US Treasuries.: A Bulleted Review

1. The WI Level (When-Issued Yield)

The “When-Issued” market is essentially a futures market for the Treasury security that is about to be auctioned. It trades in the days leading up to the auction and right up until the auction deadline.

• The Benchmark: The WI yield at the exact time of the auction bidding deadline (1:00 PM ET) is the “expected” price.

• The “Stop” (High Yield): This is the actual highest yield accepted by the Treasury to sell the entire auction amount.

• The Tail: If the Auction Stop yield is higher than the WI yield, it is called a “Tail.” This is bearish (bad demand) because the Treasury had to offer a cheaper price (higher yield) than the market expected to get the deal done.

• Stop-Through: If the Auction Stop yield is lower than the WI yield, it is a “Stop-Through.” This is bullish (strong demand) because buyers were willing to accept a lower yield than expected to secure the paper.

2. Bid-to-Cover Ratio

This is the primary measure of overall demand depth. It is calculated by dividing the total dollar amount of bids received by the amount of debt being sold.

• Measurement: A ratio of 2.5 means there was $2.50 of demand for every $1.00 of debt sold.

• Interpretation: A higher number indicates stronger demand. Traders usually compare today’s Bid-to-Cover against the “Six-Month Average” or the previous ten auctions to see if demand is rising or falling.

3. Indirect Bidders

These are buyers who place bids through a primary dealer rather than directly with the Treasury.

• Who they are: This category is heavily dominated by Foreign Central Banks (via the Fed) and international investors.

• Significance: This is widely viewed as a proxy for Foreign Demand. A strong Indirect number (e.g., 65% or higher) suggests that foreign entities remain confident in the US Dollar and US debt, which is generally supportive of the USD.

4. Direct Bidders

These are non-primary dealer institutions that place bids directly with the Treasury.

• Who they are: Domestic money managers, hedge funds, pension funds, insurers, and occasionally individuals.

• Significance: This is a proxy for Domestic Demand. If the Direct bid percentage rises, it often signals that US-based investment funds see value in the current yield levels.

5. Dealers (Primary Dealers)

Primary Dealers are large banks (like Goldman Sachs, JPMorgan, etc.) that are obligated to bid in Treasury auctions to ensure the debt gets sold.

• Role: They act as the “backstop.” They buy whatever the Indirect and Direct bidders do not.

• Interpretation: You generally want to see the Dealer award be low.

  • Low Dealer Award (e.g., <15%): Bullish. Real investors bought the debt, leaving the banks with very little “inventory” they have to sell later.

  • High Dealer Award (e.g., >25%): Bearish. Real investors didn’t show up, forcing the banks to absorb the supply. This creates “indigestion” because dealers will immediately try to sell that debt into the secondary market, pushing yields up.

This article was written by Greg Michalowski at investinglive.com.

It’s a tough time of year to try and make sense of market moves but I suspect we’re seeing profit taking and position squaring into year end. Some of the high-flying power-generation stocks are getting beaten up today and Oracle continues to crater. We also saw Tesla hitting all-time highs this week, which I suspect was at least partially due to short covering.

Nvidia, Google and Broadcom are all among the worst performers in the S&P 500 as well.

The S&P 500 is down 0.5% while the Nasdaq is down 0.8% in another sign of where the selling is coming from.

In terms of the short-covering angle, some of the best performers are Moderna, Service Now and Chipotle, all laggards this year.

So overall, I wouldn’t try to put any kind of macro or bigger stock market theme into the price action. I do suspect there is some real angst about AI and that could lead to some heavier tech selling at the turn of the year. For now though, this is flows not fundamentals.

This article was written by Adam Button at investinglive.com.

• Prior was -1812K
• Gasoline +4808K vs +2062K exp
• Distillates +1712K vs +1178K exp

There was a huge draw in the private data released yesterday, so ‘expectations’ were for something more-bullish than the consensus.

• Crude -9300K
• Gasoline -4800K
• Distillates +2500K

As a result, we’re getting some selling pressure on oil after the data. This is an unusually large divergence.

This article was written by Adam Button at investinglive.com.

The machine shown in this picture is probably the most-important one in the world. It’s from Dutch company ASML and it’s used to fabricate the most-precise computer chips.

Last year, the US began restricting their use and export into China.

Naturally, that caused some panic in Beijing and the country’s resources were marshalled at building a replacement. A report today from Reuters says they have at least partially succeeded. Citing sources, the report says researchers created a working prototype, not just now but in “early 2025” though it’s still undergoing testing and hasn’t produced a working chip.

That sounds a bit dubious but they’re extremely complicated machines. China’s aim is to produce its own chips by 2028.

If that’s the case, the US will then lose whatever moat it has in chips. The question is whether the US can be so far ahead in AI at that point that it won’t matter.

As for the market reaction, shares of ASML dipped on the headlines but it appears as though the market had largely priced in this development already.

This article was written by Adam Button at investinglive.com.

Fed Chair candidates are falling over themselves to explain how inflation really isn’t 2.8% y/y, as it was in the most-recent PCE report. They’re stripping out rent and portfolio management fees and tariffs to say that inflation is basically on target.

“Tariffs are not a source of persistent inflation,” candidate Chris Waller said today.

This is clearly an attempt to make the appropriate dovish talking points to please Trump. Now whether that charade continues after they actually get the job is anyone’s guess but time will tell.

Of course, the one-off factors swing both ways and that’s something they’re completely ignoring. WTI crude oil is down 23% year-to-date. That’s a big drag on inflation that will continue for a while as lower crude prices filter through.

But it won’t continue forever. If you’re watching oil company budgets this month, they’re being trimmed. No one is making money at $55 WTI and that’s going to do what low oil prices always do — cure low prices. Global oil demand continues to rise and the OPEC excess production will be trimmed and oil prices will inevitably rise again.

Of course, when crude prices do go up again, the same trio of Fed candidates will be ultra-quick to exclude energy costs in the PCE calculation. That won’t be a good look.

Ultimately though, the scorecard is what happens on inflation. We’ve just gone through a period of high prices that were a reminder to everyone of the costs. They were extremely disruptive and led to the topping of virtually every elected Western government; it also eroded faith in money and central banks. Still, it’s largely seen as a pandemic one-off. A repeat would be exponentially-more damaging and would risk unmooring inflation expectations for a generation.

In addition, there are other bubbles that are being formed by inflation that will take many years to unwind.

The Fed is traditionally the thought-leader of global central banks but it’s not clear there are enough people left to fight off inflation. We are also dealing with the breakdown of the global trading system and disruption of AI. How that impacts jobs, inflation and the economy is hard to predict but one thing that everyone in the economy should be able to rely on is sound money.

This article was written by Adam Button at investinglive.com.