Stephanie Roth Talks FOMC Minutes, Inflation

**SPEAKER_1** (0:02)
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**Carol Massar** (0:07)
All right, latest on the war continues to remain on the list of market risk factors, no doubt about it. Still an unknown, I think it's safe to say, as we see the back and forth continuing. So too is what maybe Kevin Warsh may do when it comes to monetary policy, although I feel like markets are getting more sure about what happens here in 2026, Bailey.

**Bailey Lipshultz** (0:26)
It feels like everyone's on pause, even when you look at rate expectations using the warp function, pricing in a hike in the coming months, but even when you talk to strategists or people who are trading FX, it seems like that's more protective positioning as opposed to really betting that higher is the next move and higher comes quickly.

**Carol Massar** (0:42)
All right. So let's get to it. We've got with us a guest who has called the family fight that took place three weeks ago. We're talking about the latest FOMC meeting. Delighted to have with us Stephanie Roth. She's chief economist at the independent sell side research firm, Wolfe Research, joining us here in studio. Stephanie, it's great to have you here. The Fed minutes showing a few officials saw a case for a June great hike. What's your read on this? What's significant, if anything, out of the minutes?

**Stephanie Roth** (1:06)
I mean, it's interesting that a few officials did want a great hike in June. Probably no surprise, and we could perhaps guess which one of those officials they are.
Otherwise, it seems that they are concerned about the amount of inflation, but not overly so, and expect that inflation should be coming down, but perhaps sticky in the near term. The thing to flag is that they noted AI is notably inflationary, which is something that we're very much seeing in the data.

**Bailey Lipshultz** (1:34)
Yeah, that's what I wanted to ask, because as much as we want to talk about higher oil costs, higher gas prices, obviously, the events of the last 24 hours changes that. But when we look at the bottleneck around ships and what we're seeing passed along to consumers, higher iPhone prices, higher Xbox prices, how does the cost associated with AI impact our expectations for the next six months, the next 12 months?

**Stephanie Roth** (1:56)
Yeah, so we estimate so far that AI is boosting core PC inflation by about 40 basis points, at least by the end of the year. Right now, it's about 30 basis points. That should drift a little bit higher, especially as the Apple price increases feed into the data. Interestingly, though, BEA is making some revisions to their data at the end of September that will then cut that in roughly in half, which is not great optics, although the change makes sense.
So it is certainly having an impact on the inflation data so far. Our expectation is it won't really have a material impact from here. It will kind of be this sticky price increase similar to tariffs and the Iran war shock, which was certainly mentioned in the minutes as well. Those things should be one time in nature. The problem is we just have had continuous shocks that have impacted inflation.

**Carol Massar** (2:37)
And things going on longer than we anticipated. Here we are once again talking about attacks between the US and Iran. And it's interesting how the market seems to somewhat largely dismiss it. The energy markets obviously react. But I mean, do you look through it? Do you say, OK, it's just a matter of timing before everything really calms down? Or is that still a major risk factor?

**Stephanie Roth** (2:56)
It certainly is a risk. At this moment, I think markets are trading it the right way. That this is probably not going to result in many more months worth of fighting. It might be a short period of time where this creates some pressure. And then eventually, they'll probably come to some sort of agreement. Neither side really wants to go back to full-blown fighting. So our expectation is it doesn't result in oil prices rising to $100 and staying there for a while. Our expectation is it won't end up materializing into anything that's much more long-lasting. But of course, the risks are to the upside.

**Bailey Lipshultz** (3:28)
Well, but with some of those risks, what are the biggest risks that could result in the Fed actually hiking in the next six months even?

**Stephanie Roth** (3:35)
Yeah, so I think the risk is very short-term. Either the Fed ends up hiking in July or September, although otherwise the window probably has passed because it's really the next couple of months where data could remain elevated. And then the pressures that we talked about, tariffs, AI-related inflation, Iran-related inflation, those should start to fade towards the end of this year, in which case the case for a hike in this environment is probably not really there. But if we end up with the unemployment rate actually sustainably ticking back down, the most recent tick down seems to be noise. If you end up with inflation running probably above 0.25 percent in the next couple of prints and core PCE terms, like that could become an issue.