Then there is the ongoing news about inflation. It continues to show pressure broadening and looking ever less transitory. Wednesday brought publication of the PCE deflator numbers for October, the Fed's favored inflation indicator. The numbers are slightly lower than for the CPI, but the direction of travel is identical:

While this is disconcerting, the details are worse. Looking at the Dallas Fed’s “trimmed mean” data for the PCE, which exclude the components that have moved the most and least, and takes the average of those left, we see that this version of core inflation has risen over the last six months at the fastest rate in three decades. October’s rise was a little slower than September, but still more rapid than any other month in 30 years. It is not possible to dismiss this as a transitory effect of the pandemic on a few specific sectors:

How does the prospect of further pandemic disruptions feed into the inflation picture, following the omicron news? It’s not encouraging. With social distancing making it harder to partake of services, consumer spending has funneled into goods, over-stretching supply chains. Goods inflation is running far head of inflation for services.

Further pandemic delays and stoppages would likely translate into higher goods inflation, already at its highest in four decades. Research from the San Francisco Fed amplifies the message that inflation is still being driven primarily by those goods and services that are most sensitive to the pandemic. They divided the CPI and the PCE baskets into “Covid-sensitive” and “Covid-insensitive” indexes, with the former taken from those components whose prices or quantities moved most during the first months of the pandemic. It is the sectors that took the biggest shock in early 2020 that are still leading inflation upwards:

Where does all this get us? Markets have marked down the chance of monetary tightening from the Fed, and another big pandemic wave would certainly make rate hikes very unpopular. But it looks ever more as though there is an inflation problem that another wave would exacerbate. It’s  harder to see how the Fed can resist tightening.

Where The Risks Are
If the omicron news has changed the macro-environment, it also shows up in the oil price. Friday saw the most dramatic sell-off in crude oil in more than a year, apparently breaking the upward trend that’s persisted since last year’s Covid shutdown. Oil had looked overextended and had drifted down for a matter of weeks. But this was something else: