Eclipsing the Fed’s Control

The world is just a few days removed from the 2024 solar eclipse, and some have already booked their flights and places to stay for the next one.  It will happen on August 12, 2026 and will be visible in Greenland, western Iceland, and northern Spain.  Happening in August, the event is more than two years away, yet we know when it will occur because of math.

While an incredible tool, even math has its limits.  Take inflation.  We can measure it, but even those measurements are varied and come with revisions.  Imagine showing up for an eclipse only to have the astrophysicists revise the location or time of the event.  Currently, some of the smartest and most educated people on earth are struggling to get inflation right at the Federal Reserve and other central banks around the world.  Earlier this week we got data on the Consumer Price Index from the Bureau of Labor Statistics, and it was higher than most expected in March. 

Inflation is currently casting its shadow on our economy.  When the moon’s shadow is cast on the earth, strange things happen for that particular time of day.  To wit, animals and plants quickly change behaviors, acting as if it was already night.  Similarly, there are strange things happening in the economy.  The looming shadow of inflation influences significant economic factors.  For instance, our economy has been under an inverted yield curve (the difference between rates on the 10-year and 2-year Treasury yields) since mid-2022 in anticipation of declining rates yet to materialize.  Additionally, higher borrowing costs have slowed the housing market substantially over the past few years.  Such phenomena can be directly tied to higher than targeted inflation.

Eclipses are rare yet predictable events, happening on average every 18 months.  Inflation, on the other hand, is a consistent, yet unpredictable phenomenon which is reported several ways each month.  Eclipses are transitory.  Inflation isn’t.  Life gets more expensive every year.  What we all hope for is that periods of faster-than-normal inflation are ephemeral.  If it proves otherwise, the Federal Reserve will be forced to intervene in a more meaningful way, and there is no telling how economic behaviors will change.  Math alone cannot tell us when we’ll reach a more normal state of inflation, but it does let us know that the next North American eclipse will happen on August 23, 2044.