- The decline in short-term inflation expectations following the announcement of the Jun-23 CPI number and the slowing wage growth appears to revive the “Fed pivot” expectation.
- The threat of reflation stemming from a potential increase in energy prices may limit the room for the Fed to address the weakening economic momentum.
- The combined risks of reflation and economic contractions may push FOMC members to seek a compromise between their inflation target and the long-term outlook for interest rates, potentially exposing the global economy to close-to-2% inflation rates and moderately higher interest rates for an extended period.
