The summer rally just hit a wall. The Federal Reserve’s annual meeting Thursday in Jackson Hole, Wyoming has investors on edge.

Fed Chair Jerome Powell is scheduled to give a speech Friday morning, and Wall Street frets that he might unleash a super-hawkish move. The major U.S stock market indices plunged across the board Monday. In pre-market futures trading Tuesday, stocks were attempting a rebound.

Jerome Powell in the past has expressed admiration for his cigar-chomping predecessor, Paul Volcker. Will Powell follow Volcker’s example? The evidence belies such fears. Let’s examine the latest signs that inflation has peaked.

Leg breakers at the Fed…

First, a quick re-cap of history. Inflation as measured by the Consumer Price Index (CPI) spiked from 3.4% in 1972 to 12.3% in 1974. In the early days of the Reagan era, it took Fed Chair Paul Volcker’s tough medicine in the form of sharp interest rate hikes to finally kill inflation.

In the process, Volcker also crushed the economy. By 1980, he had boosted interest rates as high as 20%, an astronomical level that resembles the “vig” charged by Tony Soprano. Recession ensued.

The pessimists worry that the Fed will spring a nasty surprise this week, but the latest inflation numbers are actually encouraging.

Of course, just because inflation is cooling doesn’t mean prices aren’t high. But the media tend to distort the inflation picture. In this election year, we’re hearing a lot of demagoguery about inflation. You need to deal with reality.

The annual “core” CPI rose at a rate of 5.9% for the 12 months ended July 2022, matching the previous increase, the U.S. Labor Department reported August 10. Core inflation excludes volatile food and energy components.

This rise in core inflation is a major deceleration from the 0.7% rate posted in the previous month. Prices are falling on a range of crucial products, and supply chains are starting to return to normal.

In recent weeks, products that racked up some of the worst price spikes have been falling back to earth:

• Crude oil prices peaked at over $120 per barrel in March; they’re currently down more than 25%.
• Housing prices, which account for a large share of the CPI, have been tumbling.
• Motor vehicle prices soared in 2021 and early 2022, due to pandemic-induced closures of manufacturing facilities. The latest data now suggest a sharp decline in prices from July to August.
• Lumber is no longer exorbitantly expensive. Remember when the press was going berserk about the high cost of lumber? Surging wood prices were in the vanguard of inflation’s comeback, but they’re currently down roughly 60% since March.

Prices also are falling among a wide range of other vital commodities, such as copper, steel, aluminum, iron ore, cobalt, grains, poultry, eggs, and gasoline.

People often cite “time” as the most valuable commodity of all, and the cost of time, in the form of supply chain bottlenecks, also is easing. The supply chain is rapidly returning to pre-pandemic levels (see chart).

The chart above depicts the widely followed RSM index, which is comprised of several different supply chain-related data from government and private industry reports. The index synthesizes statistics that encompass inventories, delivery times, prices paid, and freight traffic volume, among other components.

The RSM index shows substantial improvement in backlogs and delays in transporting goods. The uncertainties of conducting business are waning.

Read This Story: Is The Fed Fighting The Wrong War?

Therein lays the rub with Fed policy. Inflation these days is largely the result of forces beyond the central bank’s control, such as shortages and supply chain imbalances. The danger is that Powell and his minions, in their quest to show resolve, will gratuitously harm the economy.

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John Persinos is the editorial director of Investing Daily.

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