Morning Brief host Julie Hyman sits down with Yahoo Finance Breaking Business News Reporter Jake Conley and Washington Crossing Advisors senior portfolio manager Chad Morganlander to discuss surging consumer prices and whether an interest rate hike cycle from the Federal Reserve can actually mitigate inflation.
There was a great piece in the journal this morning sort of framing out where we go from here in terms of inflation. And that inflation, at least in the short term, feels like it's only going to go higher.
It's not like obviously the Fed raises rates and like the inflation problem is solved. And I think there are questions about whether it does get solved at all from the Fed raising rates.
But we know that um costs are already going higher for all kinds of fuel, even though oil prices have come down a little bit over the past couple of days.
Um and we know there is inflation elsewhere.
Well, financial conditions have been extremely loose as we point out. Credit spreads are historically tight right now, similar to 2007 and 1999.
The inflation rate has is across the globe has kicked higher.
That puts the Federal Reserve and other central banks on their heels. They're going to start raising interest rates and continue to raise interest rates gradually.
The problem here is what to what effect does it and how long does that take to scotch that inflation rate?
And will it even will it work?
And will it work? No, I I really don't think it will work over the next 12 months. You have oil prices that are hitting higher highs.
Yes, they backed off a bit. You have fiscal stimulus across the globe. The deficit spending here in the United States is up to roughly 6%.
That's an astonishingly high level. So you need to fix the deficit spend at the same time, financial conditions have to kind of tighten.
And credit, okay, credit availability has been quite robust on the corporate side. That creates dollars into the system. So there's more dollars that are that are expanding creating inflation, not only here in the United States, but across the globe.
So maybe at the margin this raise will, you know, shrink that availability of corporate credit. but probably one raise is not going to do that.
No, it's not going to be enough.
I want to pull on a few things you said, Chad. I've been asking this to several people because it it keeps sticking with me. There is a theory going into this hike that this and any other hikes we see in the cycle are really just undoing the cuts of 2025.
Kind of bringing us back to baseline, right? But it feels when I look around like the world has fundamentally changed. Look at the booming debt, look at the war in Iran and the fact that the energy complex is going to be messed up for years.
Look at the AI boom. It feels like things are that we're not getting back to normal because normal is removed. doesn't exist anymore.
I got to completely agree with you and that was well said. Uh in order to actually normalize the the situation, you have to raise rates quite a bit further uh well beyond what the inflation what the expectations are for this street.
Uh we'll see, perhaps we'll go another one or two rate hikes over the course of the next three months, and then they're going to sit on their hands.
