Weekly Market Commentary 02/16/2018

The stock market overcame its inflation jitters this week, recovering more than half of the heart-stopping losses suffered over the previous two weeks. In the process, it forgave the latest report on consumer prices that, on the surface, would seem to intensify inflation concerns. What’s more, the week introduced another element into the inflation equation; a two-year budget deal that lifts Federal outlays by an additional $300 billion in 2018 and 2019. While the headlines focused on the ballooning deficit and Treasury borrowing that the deal will surely bring about, it also pumps up the economy’s growth rate at a time when its labor and productive resources are already stretched to the limit. More growth pressing against supply constraints translates into higher inflation.