The economy has been moving sideways a bit, confounding both optimists and pessimists, whose pronouncements of booms and disasters somehow seem to balance each other. Ignoring both camps seems to make the most sense. Inflation is cooling, and if you look at the contraction in the money supply, you can convince yourself that the Fed will raise rates one more time and then stop for a while. I hope that’s the case. The Dallas Fed’s weekly economic summary showed this chart of the very broad monetary measure, the St. Louis Fed’s Adjusted Monetary Base. The money supply’s monthly growth has been slowing after a year of Fed tightening. The Fed’s action typically takes 12-18 months to have an impact, much like being on the top floor of a high rise apartment with a bad boiler: sometimes the hot water takes forever to reach you. Now that it has, the Fed should step in and enjoy the hot shower.

Dallas Federal Reserve Economic Update

There’s concern that rising oil prices, surging since their recent brief retreat, are a sign that inflation is not dead. This confuses economists constantly, it seems. If inflation is just plain old increasing prices, then anything oil does will surely ripple through the economy. As readers know, we’re still a ways off from oil prices that are at truly record levels. Adjusting for inflation, oil would have to be in the $80 - $90 range, and with energy efficiencies of the last two decades and more considered, there is a good case for $140 - $150 being the price level oil would have to reach to create the “oil embargo” style pain we saw in the 1970’s. This is what makes comparisons with past economic data so difficult: a dynamic economy has constantly changing interconnectivity of elements that only seem to be independent.