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I don't necessarily believe that this will happen. However, if it does happen, it will be a hard time for all. The Fed was late to hike rates back in 2022 when inflation was rising. During that time, despite CPI being at 5%, they said inflation was transitory. The full effects of rate changes, from one extreme to another, take an awful long time to see their full effects. Fed funds were cut to 0% in April of 2020. They did not realize inflation was a problem until 2022, almost a year and a half later. During this time, the stock market had ripped 115% from the COVID lows, people were buying houses before seeing them, and offering 50-100k over asking. NFT's and the metaverse became a big thing as well, which, as it turned out, was absolutely garbage. Stocks like RIVN, GME, and AMC became hyperbolic. Yes, the Ukraine invasion and the consequent block of Russia added to the cause. I will address this a bit further down. There was a bubble. The stock market finally corrected 25%, meme stocks went down, and mortgage rates went up, putting a stop to the overly high demand for buying houses.
Fed funds later peak at 5.25-5.5 in August of 2023. He then cuts rates to 3.5-3.75, Powell continues to say that we are at a comfortable range to hold. If true, this is their version of "inflation was transitory". The supreme court is to make a decision on the tariffs being upheld; i believe this is the "ukraine moment" to deflation. Supply will rush, causing higher supply and lower prices. AI is another plausible accelerator to lowering service costs.
The fact is that inflation has already been lowered, from 9% to 2-3%. Any lessening of cutting rates, combined with supreme court's decision, will unleash a fury of chaos.
As the regime shifts, gold and silver coming down might be the first sign of this. Deflation is the lowering of prices; gold and silver's prices are lower in past few trading days. Historically, gold had performed well during deflationary cycles; however, that is in the past. Gold was used as a means of wealth. The main question is, just like bitcoin, is gold a shiny object syndrome? Food for thought.
The left tail is always fat. Per Powell, the tail is always fatter than what you think it is. I think there is a conversation to have about deflation. I also think that there is a probability of resurgence of inflation (tariffs working through the supply chain + the lack of data due to government shut down (mostly shelter)).