Inflation and interest rates are linked, but not always in straightforward ways. Fear of higher prices can drive rates up, while markets may ignore actual inflation having anticipated it.

This year we devoted a special series to inflation (link) and, with expert help from our favorite economists, have written extensively about rate expectations. Recent data has certainly created alarming headlines. A cursory look at the facts behind the fever is educational.

Last Friday’s CPI report showed November’s consumer prices up 6.8% versus last year. Not since 1982 (when Joe Montana’s 49ers beat the Bengals in Super Bowl XVI) has that metric been as lofty. As one analyst put it, “It was a very high inflation print, but it was a high inflation print that was already expected and should have been priced into the market.”

Two other factors have come into play: Omicron’s emergence, and the Fed’s modified hawkish stance. Both the variant’s impact on future growth and the central bank’s willingness to taper faster for a potentially earlier rate hike have raised the possibility of a future slowdown. Welcome to the land of mixed signals!