Admittedly, the “risk of inflation re-acceleration” talking point is a bit tired by now.

Over the past three years, everyone was forced to become an expert on the constellation of factors that can contribute to undesirably elevated prices, including supply chain frictions, conflict-driven disruptions and labor market mismatches. On the demand side, the read-through of stimulus, easy financial conditions and the so-called “wealth effect” from higher asset prices, can (and did) exacerbate the situation.

Although most of the dynamics mentioned above have more or less resolved, the combination of i) renewed concerns on the supply side courtesy of war and, most recently, the Houthis’ “naval exercises” and ii) the prospect of rekindled demand from rising asset prices, has some worried about the potential for another year of frustratingly elevated price growth.

With that in mind, I wanted to highlight two charts and a bit of color which together speak to the supply- and demand- sides of the equation.

As regular readers are well apprised, the financial conditions easing impulse unleashed in November and December by Janet Yellen (through smaller-than-expected coupon increases at the November refunding), the Fed (through the dovish pivot) and a run of relatively soft US macro data (notwithstanding labor market resilience), was among the most pronounced in recent memory.

Indeed, as the figure below shows, it was the largest on record using a two-month window on Goldman’s widely-cited gauge.

Investors pricing in five or more rate cuts for 2024 have adopted “a maximally sunny outlook on inflation,” BofA’s Jared Woodard remarked.

Of course, that FCI easing is emblematic of a very large windfall for investors, on paper anyway, and the attendant drop in mortgage rates (which fell sharply alongside Treasury yields) is conducive to a pickup in housing market activity.

That’s the demand side. On the supply side, there are any number of ways in which the disinflation story could have an “imperfect ending,” as BofA put it, while outlining 10 possible surprises for 2024.

“The US-led coalition has been ineffective so far in stopping Houthi attacks on cargo ships in the Red Sea [and] container prices have spiked 90% in recent weeks,” BofA went on.

The figure above is pretty remarkable, or as remarkable as intuitive relationships can be.

And it’s not just the Houthis, although (credit to their PR department) the group has proven adept lately at garnering enough headlines to make investors believe it’s all about them.

BofA also warned that crude could conceivably go as high as $150 in the event of an escalation in the Mideast that finds the Israel-Hamas war spilling over to Lebanon.

I realize the “spillover” risk warning is so ubiquitous by now as to be a cliché, but the assassination of Hamas’s Saleh Al-Arouri and, just days later, the death of Hezbollah’s Wissam Al-Tawil, raised the stakes materially.

Further, BofA flagged still elevated core services inflation, a 5% raise for US government employees in 2024, a pickup in housing starts and miscellaneous other risks, including the weather, disruptions to grain shipments due to the war in Ukraine and geopolitical risks in general, in warning market participants not to take disinflation for granted.

As for the interplay between equities and the Fed’s decision calculus in 2024, the bank said “any large moves in markets may be self-limiting.”

“Big drops in stocks could prompt Fed cuts [while] big rallies further ease financial conditions and rekindle the very inflation that the Fed thought it had smothered,” Woodard wrote. “It’s a recipe for a range-bound, if volatile year, at least in the US.”