Inflation Is Still a Problem. Is the Fed Fighting the Wrong War?

Ed Yardeni (0:00)

So we have a problem, and we may need to raise interest rates.

David Rosenberg (0:03)

I think that the inflation numbers are going to surprise to the downside for the next several months.

Tom Lee (0:08)

As Winston Churchill said, the War Department always fights last year's wars, and I think economists are fighting last year's wars.

Maggie Lake (0:19)

Inflation is still refusing to go quietly. Today's CPI showed prices rising 3.4% from a year ago, while core inflation eased to 2.4%, but came in a little hotter than expected for the month. So is inflation still the biggest threat facing the Fed, or are policymakers fighting yesterday's battle? Here's what some of our recent Wealthion guests have been telling us.

Ed Yardeni (0:47)

The president of the New York Fed, John Williams, gave a speech recently in which he gave us some forward guidance, believe it or not. You know, under Kevin Morse, the new Fed chair, he doesn't want to give any forward guidance. But John Williams basically said that as far as he's concerned, if inflation just stays 0.2 percent month over month, over and over again, so that we don't have a problem. If it shows signs of being more like 0.3 or 0.4, in other words, it's not consistently 0.2.

So we have a problem and we may need to raise interest rates.

Barry Knapp (1:31)

You look at CPI goods, they're basically zero now since tariff, the effective tariff rate peak last September. That's all washed through. Services prices seasonally, those will come down the next couple of months. That's been the pattern post global, post pandemic. And rents are still calculated by both CPI and PCED at three, when all the alternate measures are more like two or lower. So rental inflation is most likely going to come down.

Core services will come down over the next few months and good prices are flat.

David Rosenberg (2:09)

The question about inflation is, is it the prices businesses want to pay, or is it the prices that consumers are willing and able to pay? And there's always that tug of war. I think that the inflation numbers are going to surprise to the downside for the next several months. I think the economy will continue to grow, but below potential, which is going to put overall downward pressure on aggregate prices.

So I think that we're going to be in a period of disinflation.

Tom Lee (2:37)

Core PCE is up because of the stock market and flash memory compared to CPI. And in fact, if people accepted that, and they looked at core CPI at 2.3 versus 2, I think Weiler is correct. It's not that far from the Fed's target, and it's moving in the right direction.

Michael Green (2:54)

It basically was created to prevent the Federal Reserve from doing something as stupid as it did. And yet here we are again with people encouraging the same behavior from the Federal Reserve tied to a formula that now increasingly shows a lagged three, four, five year average on CPI. It's just absurd.

Tom Lee (3:13)

I think people, as Winston Churchill said, the War Department always fights last year's wars. And I think economists are fighting last year's wars.

Maggie Lake (3:24)

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