Less Fuel for Rising US Inflation
Expectations for rising inflation are a key component for the market’s view of a hawkish Fed and rising rates. MIG has been skeptical of this for several months. We urged our readers to discount the Fed’s dot plots following the December FOMC meeting and noted that fresh headwinds on inflation from a stronger dollar were building.
We expect inflation to soften in the first part of the year for several reasons that should be familiar to our readers. Namely, the recent boost to inflation from rising oil prices is fading and deflationary impulses from a stronger dollar are just beginning.
How can we be wrong about softer inflation? There are numerous ways for our outlook to be incorrect. These are just some of the risks to our forecast that we monitor closely.
- Deflationary forces from a stronger dollar are not sufficient to offset domestic inflationary impulses
- US labor markets are tighter than we expect and wages rise rapidly
- The US dollar reverses its recent appreciation
MIG provides investors with clarity on markets, macro and monetary policy. It combines a rigorous analytical approach with unique insight into central banks based on over a decade of experience. Clients appreciate our clear and accessible communication style
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