U.S. equities are down another 1.0% on Thursday even after the Fed’s favourite gauge brought in “some” good news on the inflation front.
Mona Mahajan’s view on inflation
The core PCE price index was up 4.7% in May versus a hotter 4.8% increase expected. According to Mona Mahajan – Senior Investment Strategist at Edward Jones – inflation will likely begin to moderate by the end of 2022.
We’re looking at a potentially cooling housing market, a potentially slowing labour market, which will over time impact wage growth as well. So, our base case continues to be that by year-end, we’ll see core inflation start to moderate.
On a monthly basis, the index was up 0.3% – 0.1 percentage points below the Dow Jones estimate. Broadly, though, the measure remains at levels last seen in 1980s.
Is the U.S. economy headed for a recession?
Mona Mahajan says the market is pricing in a recession after the Federal Reserve raised rates by 75 basis points earlier this month. This morning on CNBC’s “Squawk Box”, she noted:
Eleven of the last fourteen cycles have ended in some sort of a recessionary environment and this cycle happens to be very aggressive. What we’re seeing is markets starting to price in a downturn rather than focused on inflation.
The U.S. economy shrank at an annualised pace of 1.60% in the first quarter of 2022. Another quarter of negative GDP will check the technical definition of a recession.
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