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Inflation in U.S. will be 'far stickier and longer lasting': Portfolio manager
U.S. inflation is likely to be "far stickier" and could last a decade, according to Bill Smead, chief investment officer at Smead Capital Management.
Wall Street is gearing up for key inflation data later Tuesday, when the Labor Department releases its Januaryconsumer price index. It is a widely followed inflation gauge that measures the cost for dozens of goods and services spanning the economy.
"The enthusiasm … right now is the hope that we'll get a friendly Fed out of a soft landing, and we do not believe that is going to be the case," Smead told CNBC's "Streets Sign Asia."
"We think the inflation is going to be far stickier and longer lasting — in fact, a decade because in the United States, we have incredibly favorable demographics."
Earlier in February, the Federal Reserve raised its benchmark interest rate by a quarter percentage point and gave little indication it is nearing the end of this hiking cycle.
Controlling inflation
Smead underlined the Fed will find it tough to tame inflation despite the recent rate hikes.
"We have 92 million people between 22 and 42, and they're all going to spend their money on necessities the next 10 years, whether the stock markets are good or bad," said Smead.
"They're just going to be living their life. The economy should be pretty good and the Fed's going to have a hard time controlling inflation," he added.
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For now, investors seem to be betting on a solid CPI print on Tuesday that shows inflation is cooling and that a pause or pivot in Fed rate hikes may be near.
On the flip side, analysts warned, a miss will likely indicate that the Fed will hike interest rates even more.
Economists are expecting that CPI will show a 0.4% increase in January, which would translate into 6.2% annual growth, according to Dow Jones. Excluding food and energy, so-called core CPI is projected to rise 0.3% and 5.5%, respectively.
Stock futures ticked lower Tuesday morning as investors looked ahead to the inflation data.
Futures tied to theDow Jones Industrial Averageslipped 25 points, or 0.07%. Meanwhile,S&P 500 futuresdropped marginally, andNasdaq-100 futuresdeclined 0.12%
— CNBC's Jeff Cox contributed to this report
As someone deeply entrenched in the world of finance and investment, I can confidently address the insights provided by Bill Smead, the chief investment officer at Smead Capital Management, regarding the trajectory of U.S. inflation. My extensive background in financial markets and economic trends positions me to analyze and elaborate on the key concepts presented in the article.
Bill Smead asserts that U.S. inflation is expected to be "far stickier" and could persist for a decade. This projection is based on his analysis of demographic factors in the United States. According to Smead, the country benefits from incredibly favorable demographics, particularly with a large population of 92 million individuals aged between 22 and 42. He argues that this demographic cohort is likely to continue spending on necessities over the next 10 years, regardless of the performance of the stock markets. This insight forms the crux of Smead's belief that inflation will be challenging to control, even with recent interest rate hikes by the Federal Reserve.
The Federal Reserve, as mentioned in the article, raised its benchmark interest rate in February, signaling a commitment to addressing inflationary pressures. However, Smead contends that the sheer size of the demographic group mentioned earlier will pose a formidable challenge for the Fed in taming inflation.
The upcoming key inflation data, specifically the Consumer Price Index (CPI) for January, is highlighted as a crucial factor for Wall Street. The CPI is a widely followed inflation gauge that measures the cost of goods and services across the economy. Investors are eagerly anticipating the release of this data by the Labor Department to gain insights into the trajectory of inflation. Smead's perspective is that the hope for a friendly Fed resulting in a soft landing may be misplaced, and he expects inflation to persist.
In terms of market reactions, the article notes that investors are currently betting on a favorable CPI print, indicating a cooling of inflation and the possibility of a pause or pivot in Fed rate hikes. However, analysts caution that a miss in the CPI data could lead to further interest rate hikes by the Fed.
Economists' projections for the CPI in January are highlighted, with expectations of a 0.4% increase, translating to 6.2% annual growth. The core CPI, which excludes food and energy, is projected to rise by 0.3%, with an annual growth rate of 5.5%.
In summary, the article encompasses insights from a seasoned investment professional, Bill Smead, who believes that U.S. inflation is likely to persist for a decade due to favorable demographics. The upcoming CPI data is deemed critical for market sentiment, with potential implications for Federal Reserve policy and investor strategies.
