Did you know that the largest recorded annual inflation rate in modern history was in Hungary in 1946, reaching a mind-boggling 13,600,000,000,000,000%?

While today's inflation rates are far from such extremes, understanding their impact on our economy remains crucial.

In this edition of our newsletter, we look into these three topics:

• Is The Debt Stock A Problem? First, we’ll look at the current state of the US Debt-to-GDP ratio 💸

• Is Inflation Really Sticky? Next, we’ll unpack the recent trends in inflation 🤔

• When Will The Fed Cut Rates? Finally, we’ll get insights into the Federal Reserve's potential rate cuts ✂️

Stay informed and ahead of the curve with our expert analysis and clear explanations, designed to help you navigate the financial world. Have a lovely Friday!

Is The Debt Stock A Problem? 💸

The US government Debt-to-GDP ratio is sitting just below 100% of GDP, up from around 80% of GDP prior to Covid.

The trajectory is for a continued rise.

But the US debt ratio is in line with most other developed countries and well below Japan, which has a Debt ratio of 260% of GDP.

None of these countries has experienced a debt crisis and the US is not on the verge of one either 😌

But if we want lower interest rates, the best way of accomplishing that goal is reducing our debt ratio by cutting our budget deficit to 3.0% of GDP from 6.5% of GDP, where it stands today.

Is Inflation Really Sticky? 🤔

Inflation is running close to 3%, well above the Fed’s target.

But if we were to use a similar methodology that most other countries in the world use, our inflation rate would be just under 2%, which is below the Fed’s target.

So the inflation surge is behind us.

Yes, we are stuck with high prices, but the rate of change is now back to normal ✔️

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When Will The Fed Cut Rates? ✂️

With inflation heading back to target and the economy apparently slowing, there is little reason for the Fed to stubbornly maintain interest rates at current high levels for much longer.

Sometime by the end of July, the Fed is likely to start signaling more satisfaction that inflation is trending down, and markets are likely to increase the probability of a September rate cut.

A second cut could come as soon as December, but the Fed won’t be ready to concede that one until a bit later 📅

Inner Circle Global Macro Update 🔍

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