- JPMorgan asset managers said the economy has not experienced “perfect disinflation” and that the Fed’s rate cuts will be slower than the market expects.
- Wage growth remains strong, challenging expectations that inflation will fall to 2% soon.
- Economists at Morgan Stanley similarly expressed concerns about the persistence of inflation and said the Fed would not cut rates until June.
Markets have rallied on expectations that a weaker economy will lead to rate cuts, but analysts say they may be getting ahead of the curve.
JPMorgan Asset Management’s Priya Misra said inflation is likely to take longer to subside than the market currently expects.
“The market is pricing in a very fast decline,” he told Bloomberg TV on Friday, before the jobs report was released. “I think what the market is saying is that there will be a perfect disinflation, and the economy will be fine, but the Fed can start cutting rates because the inflation rate will be 2%. I’m not very confident about that aspect, or the continued disinflation of 2%.”
Economists like Paul Krugman have recently highlighted how inflation is tapering off without causing a spike in unemployment or an economic downturn, saying we are experiencing “perfect disinflation.”
Last month’s weaker-than-expected inflation report further boosted the economy. monster rally Stocks rose as investors bet that interest rate hikes had peaked as the economy cooled.
But Misra remains skeptical, citing steady wage growth. Indeed, November’s jobs data supported his views, showing that while the unemployment rate unexpectedly fell, payrolls grew faster than expected and wages rose 4% annually.
“Year-over-year wages are running at 4%,” she said. “How does the Fed look at this and say inflation is going to be 2%? So I think the threshold for rate cuts is high. [The Fed] They will want complete confidence that inflation will return to 2%. ”
Sarah Wolf, a senior economist at Morgan Stanley, echoed Misra’s warning that inflation will remain higher than expected and predicted the Fed would not cut interest rates until next June.
“The market is calling for a rate cut in March, but the inflation numbers will not be reassuring enough for the public.” [the Fed] to do that,” she said. bloomberg tv.
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