Regime

Macro Regime — Growth vs. Inflation (24-Month Trail)

What it is: A monthly scatter locating the US economy on two normalized axes. The x-axis is the CFNAI — the Chicago Fed's composite of 85 economic indicators normalized so that zero equals trend growth. The y-axis is Core PCE inflation (year-over-year percent change) standardized against its January 1991–December 2019 mean of 1.88% and standard deviation of 0.57 percentage points. The chart shows the trailing 24 months; the current month is the largest, fully opaque point and older points fade toward the past. Points are labeled quarterly for orientation.

Why it matters: Most macro analysis treats growth and inflation as separate conversations. Plotting them together on one frame reveals regime drift — the direction and arc of movement across quadrants carries more information than either axis alone. Whether the economy is drifting from Boom into Stagflation or from Contraction into Disinflationary Expansion implies fundamentally different conclusions about credit conditions, monetary policy, and risk pricing. The quadrant is not a forecast; it is a coordinate.

How to read it: Zero on the y-axis is not zero inflation — it is the post-Volcker average Core PCE. One standard deviation is 0.57 percentage points. At peak in September 2022, Core PCE hit +6.5 standard deviations above that baseline — running roughly 3.7 percentage points above the 1991–2019 mean. The 2009 deflation scare reached −2.2 standard deviations; CFNAI fell to −3.0 in January 2009. The choice of 1991–2019 as the reference period is itself an assumption worth naming: it treats the post-Volcker era as a stable monetary regime in which the inflation target was credible and credit expansion did not consistently destabilize the price level. Whether the 2021–23 episode marked a permanent regime shift or a recoverable shock is the question the chart is designed to help you track over time. Trail direction matters as much as position: a counterclockwise arc (Boom → Stagflation → Contraction) has historically preceded the most damaging outcomes; a rightward drift along the x-axis while the y-axis holds near zero describes a Disinflationary Expansion. The quadrant labels reflect a frame in which above-trend growth is typically credit-driven and monetary expansion is the primary driver of persistent inflation.

For historical asset return distributions by regime and the closest historical analogs to the current reading, see Regime Returns.