Key takeaways
- Political influence on the Fed could lead to significant policy errors.
- The Fed could cut rates more aggressively than currently expected.
- Forecasts should take priority over current data for better inflation management.
- The Fed’s actions impact the economy with a lag of at least one year.
- Current focus on inflation overlooks future trends, potentially leading to policy mistakes.
- The cooling of the labor market is due to demand, not supply issues.
- Inflation is expected to return to target levels by the second quarter.
- Pronounced disinflation is expected by 2026, which will surprise many.
- Negative rental rates will eventually drive down CPI data.
- The U.S. economy is experiencing a significant market bifurcation.
- The disparities in market participation and capital expenditure are evident.
- The stock market recovery is uneven, with potential risks and opportunities.
- Tariff effects and rental rates will impact inflation measures.
- The Fed’s policy approach requires a more strategic perspective.
- Economic indicators suggest the need for forward-looking strategies.
Guest presentation
David Rosenberg is president and chief economist and strategist at Rosenberg Research & Associates Inc., an economic consulting firm he founded in January 2020. Prior to that, he was chief economist and strategist at Gluskin Sheff + Associates from 2009 to 2019 and chief economist for North America at Merrill Lynch in New York from 2002 to 2009, where he was consistently ranked among analysts All-Star of institutional investors. rankings. He holds a Bachelor of Arts and a Master of Arts in Economics from the University of Toronto.
Political influence on Fed policy
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The current political influence on Fed policy could lead to a significant policy error.
—David Rosenberg
- Political pressures on central banks pose risks to economic decisions.
- The choice of Fed leadership is influenced by political dynamics.
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It seems like just a week or two ago, Kevin Hassett was going to be the pick… but it seems like there was quite a bit of pushback about it.
—David Rosenberg
- Understanding the Fed’s political dynamics is crucial for economic forecasting.
- Political influence can lead to misaligned economic strategies.
- The risk of policy errors increases with political interference.
- Central bank decisions must remain independent of political pressures.
Future Fed rate cuts
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The Fed is expected to cut rates more aggressively than currently planned.
—David Rosenberg
- Economic data will dictate the Fed’s future actions.
- Current market prices may underestimate future rate cuts.
- Aggressive rate cuts may be necessary to address the economic situation.
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I’m in the camp that thinks the data will dictate that the Fed will likely end up cutting rates more aggressively than is currently expected.
—David Rosenberg
- Understanding economic indicators is essential for predicting the Fed’s actions.
- Rate cuts could have significant consequences on financial markets.
- The Fed’s approach to rate cuts reflects its economic outlook.
Importance of forecasts compared to current data
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The Fed should prioritize forecasts over current data to better manage inflation.
—David Rosenberg
- Current data is retrospective and lagged.
- Forecast-dependent strategies can improve inflation management.
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In fact, I agree with Stephen Myron on this point: the Fed should be more dependent on forecasts than data.
—David Rosenberg
- Forward-looking strategies are essential to effective economic policy.
- The Fed’s current approach may overlook future inflation trends.
- A strategic perspective is necessary to avoid policy mistakes.
- Focusing on forecasting can lead to better economic outcomes.
Delayed impact of Fed actions
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The Fed’s actions will have their maximum impact at least a year later.
—David Rosenberg
- Understanding the timing of economic responses is crucial.
- Monetary policy impacts the economy with a significant lag.
- The delayed effects of the Fed’s actions must be taken into account in forecasts.
- Economic indicators may not immediately reflect policy changes.
- The long-term impacts of policy decisions require careful analysis.
- Timing is key to assessing the effectiveness of the Fed’s actions.
- The lag in policy impact influences economic strategy.
Labor market dynamics
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The labor market slowdown has more to do with demand than a fundamental supply problem.
—David Rosenberg
- Demand-driven changes affect the labor market.
- The current state of the labor market has consequences for inflation.
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This does not mean that we have a fundamental supply problem in the labor market.
—David Rosenberg
- Understanding labor market dynamics is essential to economic analysis.
- The demand-driven cooling could influence future Fed decisions.
- The labor market situation reflects broader economic trends.
- Inflation and labor market dynamics are closely linked.
Inflation trends and forecasts
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Inflation will likely return to target levels by the second quarter, leading the Fed to cut interest rates.
—David Rosenberg
- Current inflation trends suggest a return to target levels.
- The Fed may need to adjust interest rates in response to inflation.
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I think people are going to be surprised that probably as early as the second quarter, above-target inflation returns to target.
—David Rosenberg
- Inflation forecasts challenge consensus view.
- Potential changes in monetary policy are on the horizon.
- Understanding inflation trends is crucial to economic strategy.
- The Fed’s response to inflation will impact financial markets.
Disinflation by 2026
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Inflation will experience pronounced disinflation by 2026, which will surprise many observers.
—David Rosenberg
- Disinflation is expected to be more pronounced than expected.
- Economic conditions suggest a change in inflation trends by 2026.
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The surprise in 2026 will be the extent of this disinflation.
—David Rosenberg
- Understanding current economic indicators is essential for making forecasts.
- Disinflationary trends may not yet be widely recognized.
- Future economic conditions will influence inflation dynamics.
- Disinflation forecasts for 2026 challenge current expectations.
Rental rates and impact on CPI
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Negative rental rates will eventually impact CPI data with a lag, contributing to lower inflation.
—David Rosenberg
- Rental rates influence CPI calculations over time.
- The impact of rental rates on inflation measures is significant.
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Once the rate effect is exceeded…negative rental rates begin to creep in with a lag in the CPI data.
—David Rosenberg
- Understanding the relationship between rental rates and CPI is crucial.
- Tariff effects and rental rates will shape future inflation trends.
- The lag in the impact of the CPI requires careful economic analysis.
- Rental rates are a key factor in forecasting inflation.
American economic bifurcation
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The U.S. economy is experiencing a bifurcation, with significant disparities in market participation and capital spending.
—David Rosenberg
- Economic disparities are evident in market participation.
- The stock market recovery is uneven and reflects broader economic trends.
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Nearly 40% of the S&P’s 500 memberships actually didn’t increase this year.
—David Rosenberg
- Market bifurcation presents both risks and opportunities.
- Understanding economic disparities is crucial for strategic planning.
- Disparities in capital spending influence economic outcomes.
- The bifurcation of the U.S. economy requires careful analysis.
Stock market dynamics
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I’m currently starting to see all sorts of divergences in the stock market that are also reflected in the economy.
—David Rosenberg
- Stock market dynamics reflect broader economic conditions.
- Divergences in the stock market indicate potential risks.
- Understanding stock market trends is essential to economic forecasting.
- Economic disparities are reflected in the performance of stock markets.
- The stock market’s uneven recovery has implications for investors.
- Market dynamics require careful analysis for strategic decision making.
- Stock market trends provide insight into economic health.
