text: Good morning. Here’s your Early Warning for Thursday, 11 August 2022.TODAY’S BRIEFING:READ TIME: 10 mins 20 secondsInFocus: Weekly Economic OutlookInside the BeltwayDomestic INTSUMGeostrategic INTSUMLow Intensity Conflict Activity Rollup & OutlookInFocus: Weekly Economic OutlookEconomy watchers cheered this week as falling food and fuel prices pared back the latest Consumer Price Index (CPI) reading. A receding CPI doesn’t mean overall prices are coming down, just that they are going up slightly slower now – +8.5% over the last year, compared to +9.1% in June. Another positive development is the producer price index (PPI) falling 0.5% in July. This is the first PPI decrease since January 2020, and analysts hope it’s a sign that we’ve hit peak inflation. Federal Reserve officials are more cautious, saying they want to see several months of falling CPI before calling the top. These changes were driven by falling fuel and commodities prices, suggesting that more geopolitical instability – an expansion of Russia-Ukraine, a crisis or conflict between the U.S. and China, a Middle East war between Israel and Iran, or other major instability-producing event – could again result in supply shocks that drive inflation higher. (And, as always, my standard caveat on inflation applies: real inflation is much higher than CPI, although I use CPI as a baseline because although it’s poorly calculated, it’s still the same calculation month over month.)A Congressional Budget Office (CBO) report projects the federal deficit as a percent of gross domestic product (GDP) will average 7.3% over the next 30 years. As debt increases, the economy will struggle to expand at a healthy pace, which likely means decades of relatively low growth. Higher debt levels will also increase foreign interest payments and elevate the likelihood of a financial crisis. I still believe the Federal Reserve is on the warpath to crush competitor currencies, although an expanding BRICS alliance and a commodities-backed currency that’s allegedly in development could pose a substantial challenge to the dollar. One of my greatest concerns over this period is that a China-led economic alliance continues to replace use of the USD across 20-40% of the world. This should also lead to weakening of the USD, which will enable the federal government to pay down debt faster, but a weaker dollar will also crush the American consumer through much higher inflation. Even if we manage to avoid a sharp economic, financial, or monetary crisis, we’re in for a difficult few decades ahead. As a reminder, a study by JP Morgan found that the lifespan of a currency as the world reserve (over the past 600 years of monetary history) is roughly 80-100 years. Bretton Woods in 1944 cemented the USD as the world reserve. Adding 80 years puts us at 2024, and 100 years at 2044, which is another reason why I believe the USD is likely to lose at least sole world reserve status in the next 20 years.As for the Fed’s outlook on recession, officials remain in lock step. I haven’t seen a single Fed official confirm the U.S. recession. Nearly all regional Fed bank presidents, however, say that economic growth will be low, and some are open to the idea of an imminent recession. Minneapolis Fed Bank President Neal Kashkari, for one, said this week that “we may be in a recession in the near future.” I struggle to understand the push back against confirming a current recession. We’ve had two straight quarters of economic contraction while the Fed is raising rates. As of this morning, the Federal Funds Rate is 2.5%, and Fed officials say they want to keep raising rates to 4% by the end of the year. Right now, they say rate hikes will continue more slowly into next year. Rising rates depress economic growth, while consumers are spending through savings and racking up debt to deal with inflation – I just don’t see how the recession turns around. – M.S.INSIDE THE BELTWAYWHITE HOUSE: Biden is on vacation and has no publicly scheduled events.CONGRESS: Nothing Significant to Report (NSTR)