Inflation remains top news on Wall Street as investors wait for the Federal Reserve to cut interest rates.
The central bank has said it wants to see further evidence that price rises are moderating before starting to cut interest rates. The next inflation measure, the January Consumer Price Index (CPI), will be released on Tuesday.
we recently asked some questions Wall Street’s top strategists contribute the charts that matter most to investors today in the latest edition of Yahoo Finance Chartbook.
The six graphs, all submitted by January 26, show that while consumer spending remains strong, inflation is falling faster than most expected, pointing to a serious economic downturn. It is expected that the Fed will be able to achieve its goal of a “soft landing,” in which price increases ease without causing any damage. arrival. However, it is unclear whether inflation has fallen permanently.
“Core PCE inflation fell surprisingly quickly in 2023, from an annualized pace of 4% in the first half of the year to a pace of 2% in the second half. “That’s higher than we expected just a few months ago, already reaching 2.2% by the second quarter. As a result, the FOMC is likely to be moving a little more quickly than originally expected. I think there may be no resistance to lowering interest rates soon.”
Andrew Hunter, Deputy Chief U.S. Economist, Capital Economics
“While the annualized rate of core PCE inflation remains high, the annualized rate has already been consistent with the Fed’s 2% target for the past six months, despite the claims of many commentators. The ‘last mile’ of rising inflation is not over yet.” Getting inflation back on target will somehow be the most difficult, but this ignores the fact that the Fed has already reached its six-month target. All we need to see is that the current pace of price growth is maintained for a few more months, not a further slowdown. ”
Matthew Ruzzetti, Deutsche Bank Chief U.S. Economist
“The Fed has surprised markets over the past month with a dovish turn to start discussions on lowering interest rates. The main reason for the timing of this turn is the surprisingly rapid deceleration in inflation. Slowing Inflation This, in turn, caused inflation to rise.”If the Fed does not start cutting rates, there are expectations that policy could tighten too much in the coming months, putting such an outcome at risk of a soft landing. there is a possibility.
“The accompanying graph shows how the real federal funds rate (measured as the nominal federal funds rate minus spot inflation on a year-over-year basis) is likely to rise as inflation declines. If the Fed does not lower rates in the coming months, the real federal funds rate will begin to tighten to historically high levels, often followed by a slowdown or recession.”
Nancy Vanden Houten, Chief Economist, Oxford Economics
“Before cutting interest rates, the Fed needs to be confident that inflation is on a sustainable trajectory to 2%.…The decline so far has been driven by lower commodity prices as supply chain disruptions resolve. The final downward trend in inflation is a slowdown in inflation in services, including housing.
“Similar to the CPI, core PCE housing costs have lagged behind changes in actual rents. Given that rent growth has slowed over the past few months, further declines in the housing component of core PCE are unlikely. Almost certainly. Non-housing service inflation is supported.” Higher wage growth will drive it up, but the Fed wants it to be around 3.5% year over year. [year over year]. We expect slower employment growth to lead to continued modest wage growth into 2023.
“We expect second-quarter core PCE year-over-year growth to decline to about 2.7%, which would be enough to trigger the Fed to begin cutting rates in May. We’re not going to wait for rates to rise.”As Fed Chair Jerome Powell said last month, waiting until inflation reaches 2% is too late and risks causing too much weakness in the economy.” Ta.
Mark Zandi, Chief Economist, Moody’s Analytics
“What will be critical for the economy in 2024 will be whether consumers continue to do their part and maintain their spending, so we expect inflation to remain moderate and below wage growth across all wage groups. This is encouraging. The combination of increased consumer purchasing power and low debt has increased consumer purchasing power.” Rising service costs, rising net worth, and still ample excess savings among high-income households have pushed consumers to The economy and market will be able to endure this difficult situation and have another good year. ”
Michele ‘Mish’ Schneider, Chief Strategist, MarketGauge.com
“Inflation and disinflation are not only contentious debates, but also the most important considerations heading into 2024. As many believe, this inflation cycle has reached its peak and the worst is yet to come. Has it passed, or could we be hit by another wave similar to what we’re experiencing now?” Seen in the 1970s?
“The chart will display the following overlay [year-over-year CPI change in the 1970s with that of 2014 to the present]. There are striking similarities, almost like mirror images. On the graph, the 1974-1975 inflation peak looks very similar to the 2022 peak and decline. But in 1977, inflation started rising again, hitting new highs, and the cycle continued for another five to six years. Supercycles don’t just disappear, they cycle with the volatility and passion that the word super suggests, and inflation is known to be persistent and harmful. …
“We expect the next wave of inflation to begin occurring in late spring/summer 2024. If it does occur, the domino effect on Fed policy, the economy… and stocks will be significant.” I guess.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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