Thus, the central bank abandoned the term “temporary” and turned its attention to a new term that changes inflation: “entrenched”.
It is not clear exactly what entrenched inflation looks like and how we will know if we have reached it. The Fed has generally given very little guidance on how long they predict it will take for higher interest rates to bring down inflation. “It’s a very difficult environment to try and give a forecast 60, 90 days ahead,” Powell said last week. “There are so many things that can happen in the economy and around the world.”
Looking back: A look into the past can provide some insight: while prices have been relatively stable over the past four decades, large fluctuations were not uncommon until the early 1980s.
In the 1970s, the United States experienced its longest period of elevated inflation. President Richard Nixon took the dollar off the gold standard, and two oil price hikes pushed inflation up to 12.3% by the end of 1974. them again, leading to a cycle in which higher interest rates were not sustained long enough to end inflation or boost growth.
By the late 1970s, Federal Reserve Chairman Paul Volcker took charge and ended the policy. He raised rates and held them high until inflation eased, plunging the US into a recession (the second in a decade), but in the end, permanently lowering the inflation rate at which it remained for the next 40 years.
“I have great admiration [Volcker]”, Powell said last week when asked about the change in his policy. “He had the guts to do what he thought was right.”
Analysts often talk about the stagflation fears of the 1970s and compare our current situations, but today’s inflation is caused by a combination of the global crisis, supply chain disruptions and rising consumer demand after Covid restrictions brought the economy to a halt.
However, as markets slow down and fall, the two S-phrases — stagflation and sticky inflation — are becoming more frequent.
Some investors believe the answer lies in the middle.
“We expect US inflation to slow over the next two years, but progress will be very uneven,” Bank Of America analysts wrote in a recent note. “There is preliminary evidence of supply chain problems easing, and we expect the next year to see the ‘two steps forward, one step back’ process implemented. But it won’t be a ten-year struggle, they predict. Prices should start to decline by 2023.
Is Google a green oasis in the midst of a great technological disaster?
The up-and-coming tech sector is especially vulnerable to higher rates: Investors expect tech companies to see electric growth, but inflation and higher interest payments are hurting those gains.
But not all companies will be hit equally by the great tech crash of 2022, analysts say. Many see Google as a green oasis in the red desert.
“Google has been through several recessions and has done pretty well,” said Raymond James analyst Aaron Kessler. “Usually the last thing advertisers cut is spending on Google.”
The numbers add up: Google Search growth remained steady at 24% in the first quarter, while Google Cloud revenue increased by 44% over the same period. YouTube ad revenue fell below expectations as advertisers in Europe retreated at the start of the Russian invasion of Ukraine, but YouTube’s scale remains unrivaled with over 2 billion monthly active users. More than a third of YouTube viewers are not reached by any other ad-supported streaming service.
Alphabet has a more stable business than its competitors, Bank of America analysts wrote in a recent note. It also outperforms other companies in artificial intelligence and machine learning products, has significant spending flexibility, and has a management team that does more for shareholders than other companies.
About these shareholder benefits: Alphabet doesn’t mind scratching the back of its shareholders, the company has bought back $52 billion worth of shares in the past 12 months, and the board of directors has authorized buybacks of an additional $70 billion.
Cheaper stocks mean that smaller retail investors can pour into stocks, pushing prices up even more. More liquidity usually means more protection from wild swings, and splits signal to investors that the company is thriving and in demand by shareholders.
Kessler warned that Google is not immune to headwinds hurting other companies. “We do expect slower growth this year than we saw last year,” he said.
But over the long term, Kessler said, “we think Google probably has the strongest fundamentals in big-cap internet names.”
Monday: the April survey of consumer expectations by the Federal Reserve Bank of New York; Income from Palantir, Tyson Foods and Duke Energy
Tuesday: April NFIB Small Business Optimism Index; Income from Sysco, Coinbase and Electronic Arts
Wednesday: consumer price index for April; Energy Information Administration Oil State Report; Revenue from Disney, Warby Parker and Beyond Meat
Thursday: Weekly jobless claims; Producer price index for April: final demand; Income from Motorola and Tapestry
Friday: Import and export prices in April; University of Michigan Consumer Sentiment