Inflation Uncertainty Keeping Rates in Consolidation Mode

Scroll down far enough on the list of Webster’s definitions of the word “consolidate,” and you’ll find “to form together into a compact mass.”  Financial markets appropriated that definition long ago and have been using it to refer to the condensed mass of prices, yields, or whatever else is being measured on a chart. Speaking of charts, consolidation has a tell-tale pattern of lower highs and higher lows that form a sort of triangle or pennant (incidentally, market participants also use those terms more or less interchangeably).  Regardless of the label, the underlying phenomenon is one of indecision or anticipation of a big move that has a chance to be higher or lower.  Consolidation is everywhere in the market these days.  If we zoom way out and simply consider the general flow of events, this makes good sense.  As inflation surged at the fastest pace in decades, the Fed tightened monetary policy at a similarly fast pace.  Inflation can also act as a natural brake on economic activity as consumer buying power declines. At some point, the inflationary surge levels off and we wait for price growth to moderate back toward more sustainable levels.  The presence of consolidation makes sense because we’re smack dab in the middle of finding out whether inflation has leveled off as a sign that it’s about to go lower, or simply to take a breath before remaining stubbornly high.  Consolidation patterns are equally likely to be seen for both reasons.
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