Inflation and trades: Inflation is the direct consequence of the Fed Funds rate

Brian Twomey Brian's Investment

The concept of Inflation is viewed as an abusive number in markets and economics. The theory to the Money supply is cause to Inflation doesn't work from Correlations factored every year since 2014. Certain years are positive +70% while other years appear as negative. The results to the statement Money Supply causes Inflation is a misnomer adopted in markets from the distant past.

M1 rose from 833.00 to 23.000 from 2014 to 2024 and traveled higher every month at 1 and 2 billion. M2 followed as M1 and M2 correlate at +90%. M1 and M2 must correlate at +90% by design. Inflation was never a problem nor consideration as money supplies traveled higher and lower each month since 2014.

From a market and economic perspective, Inflation is the direct consequence of the Fed Funds rate. Inflation and Fed Funds Correlate at -90%. Its impossible for Inflation and Fed Funds to correlate positively. We're dealing with 2 numbers, 2 prices and 2 opposite numbers. If Inflation is understood as a price, conception to movements and purpose maybe becomes clearer.

When Powell began changing interest rates in 2019 and 2020, Inflation appeared and affected economics. High inflation for example lowers PPI as both negatively correlate then PPI lowers Employment, Lowers Consumption, lowers Consumer Confidence, Lowers Wages, lowers GDP. Inflation causes Economic destruction as all economic releases are interrelated by correlations and functions.

Inflation must by design negatively correlate to the exchange rate because the exchange rate and interest rates correlate at +100%. Higher Inflation lowers DXY and Fed Funds.

Higher Inflation drops DXY and Fed Funds but longs are taken to EUR/USD, GBP/USD, AUD/USD and NZD/USD.

XAU/USD and WTI will move by correlation in the same direction as the Inflation release.

Higher Inflation causes Commodity prices to drop.

The United States Inflation release is the only Inflation announcement to cause market prices to move far and wide. The reason is due to the new 2019 / 2020 SOFR rate as SOFR is connected to every interest rate in every nation across the world. Without SOFR, Inflation releases wouldn't move.

Author

Brian Twomey

Brian's Investment

Brian Twomey is an independent trader and a prolific writer on trading, having authored over sixty articles in Technical Analysis of Stocks & Commodities and Investopedia.

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