U.S. Inflation is Peaking. What’s Next?
July’s release for both headline CPI and PCE inflation made new highs, and many pundits are calling for a structurally higher inflation regime. We do not agree. Numerous leading indicators suggest that inflation is in a peaking process. Nevertheless, important questions remain. How quickly will inflation moderate? Will the Fed be able to shift gears fast enough to avoid a recession? We tackle these questions by separating inflation into supply-driven and demand-driven components. Read today’s report for the answers.
Mark McClellan
Easing Bottlenecks + Recession = Lower Inflation
The U.S. and global economies are either already in or heading into a recession, supply chain bottlenecks are easing, inventories are building up rapidly, and commodity prices are no longer rising. Are inflation risks tilting to the downside?
Harvinder Kalirai
Move Out The Municipals Curve
Today’s report discusses Municipal bond strategy at a time when Treasury yields have peaked but risky spreads have not. The good news is that the starting point for S&L finances is the best it has ever been, providing ample cushion to help weather revenue disappointments. However, this must be weighed against the darkening economic outlook and poor market liquidity. Muni yields and spreads are attractive out the curve, but should total return investors and asset allocators take the duration risk?
Mark McClellan
Can The U.S. Solve The European Gas Crisis?
The answer is no. America’s LNG exports have been rising since 2021, while natural gas prices have also soared. Any large increase in LNG exports to Europe will further fuel the surge in natural gas prices, hurting President Biden’s efforts to bring down energy costs and inflation for Americans.
Chen Zhao
Dollar Overshoot = Lower Inflation
The dollar bull market is not over and may even accelerate. One source of support: the U.S. is energy self-sufficient (Chart). As a result, the surge in oil and the rising risk premium on security of energy supply is better for the U.S. than either Europe or Japan. This increases the odds that speculators will supercharge upward pressure on the greenback until something changes.
David Abramson
