Cullen Roche joined Oliver Renick on the Schwab Network to discuss the future of inflation. He notes that inflation is lower than the Fed thinks highlighting the CPI ex-shelter component, which is now down to just 1.5%. Meanwhile, the shelter component is just turning the corner from record highs and remains at 6.7% even though real-time rents and home prices are meaningfully lower. Mr. Roche expects this to continue to put downward pressure on inflation into 2024.
Cullen also noted that the Fed’s done a good job so far despite some offset from the broader government’s continued spending. He expects the Fed to keep policy tight well into 2024 until we start to see inflation prints that are well below 2.5%. That could mean that interest rates will remain high for much of 2024.
They also discussed the strange divergence in performance across the US stock market as the so-called “Magnificent Seven” drive most of the performance. This unusual skew last occurred in 1998 and reflects a US stock market that is becoming increasingly concentrated in just a handful of names. This could warrant some hedging when compared to the global market cap which is just 20% technology when compared to the US market at 30%.
Watch the full interview here.
