Important points
- Political influence on the Fed could lead to serious policy mistakes.
- The Fed could cut interest rates more aggressively than currently expected.
- Improving inflation management requires prioritizing forecasts over current data.
- There is a lag of at least a year before the Fed’s actions affect the economy.
- Focusing on current inflation overlooks future trends and risks policy mistakes.
- The cooling of the labor market is driven by demand, not supply.
- Inflation is expected to return to target levels by the second quarter.
- Significant inflation is expected to occur by 2026, much to the surprise of many.
- Negative rents ultimately drive down CPI data.
- The U.S. economy is experiencing major market divergence.
- The disparity between market participation and capital investment is clear.
- Stock market recoveries are uneven and present potential risks and opportunities.
- The impact of tariffs and rental rates affect inflation indicators.
- The Fed’s policy approach requires a more strategic outlook.
- Economic indicators suggest the need for forward-looking strategies.
Guest introduction
David Rosenberg is President, Chief Economist and Strategist of Rosenberg Research & Associates, an economic consulting firm he founded in January 2020. Previously, he was Chief Economist and Strategist at Gluskin Sheff + Associates from 2009 to 2019 and Chief North American Economist at Merrill Lynch in New York from 2002 to 2009. Consistently ranked in the Institutional Investor All-Star Analyst Ranking. He holds a Bachelor of Arts degree and a Master’s degree in Economics from the University of Toronto.
Political influence on Fed policy
Current political influences on Fed policy could lead to significant policy errors.
— David Rosenberg
- Political pressure on central banks poses risks to economic decisions.
- Federal Reserve leadership choices are influenced by political dynamics.
Kevin Hassett was expected to be selected just a week or two ago, but there seems to have been quite a bit of backlash.
— David Rosenberg
- Understanding the Fed’s policy dynamics is critical to economic forecasting.
- Political influences can lead to misalignment of economic strategies.
- Political interference increases the likelihood of policy errors.
- Central bank decisions must be independent of political pressure.
Fed’s future rate cuts
The Fed is likely to cut interest rates more aggressively than currently priced in.
— David Rosenberg
- Economic indicators will likely determine the Fed’s future actions.
- Current market prices may underestimate future rate cuts.
- Aggressive rate cuts may be necessary to address economic conditions.
I’m in the camp that believes, based on the data, that the Fed will probably cut rates more aggressively than currently priced in.
— David Rosenberg
- Understanding economic indicators is key to predicting the Fed’s actions.
- Interest rate cuts could have a significant impact on financial markets.
- The Fed’s rate-cutting approach reflects the economic outlook.
Predictions are more important than current data
The Fed should prioritize forecasts over current data to better manage inflation.
— David Rosenberg
- Current data is retrospective and inherently lagging.
- Strategies that rely on forecasting can improve inflation management.
In fact, I agree with Stephen Myron that the Fed should be more prediction-based than data-based.
— David Rosenberg
- Forward-looking strategies are essential for effective economic policy.
- The Fed’s current approach may overlook future inflation trends.
- Strategic foresight is needed to avoid policy mistakes.
- Emphasis on forecasting can lead to better economic outcomes.
Delayed impact of Fed actions
The impact of the Fed’s actions will peak for at least a year.
— David Rosenberg
- It is important to understand the timing of economic reactions.
- Monetary policy affects the economy with significant delays.
- This needs to be taken into account when estimating the impact of delayed Fed action.
- Economic indicators may not immediately reflect policy changes.
- The long-term effects of policy decisions require careful analysis.
- Timing is important in assessing the effectiveness of the Fed’s actions.
- Delays in policy effects affect economic strategy.
labor market dynamics
The cooling of the labor market has more to do with demand than with fundamental supply issues.
— David Rosenberg
- Demand-driven changes are impacting the labor market.
- The current state of the labor market affects inflation.
This does not mean that there is a fundamental supply problem in the labor market.
— David Rosenberg
- Understanding labor market dynamics is key to economic analysis.
- Demand-related cooling could impact future Fed decisions.
- Labor market conditions reflect broader economic trends.
- Inflation and labor market trends are closely related.
Inflation trends and forecasts
Inflation is likely to return to target by the second quarter, prompting 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.
I think people will be surprised that inflation, which was above target, will probably be back on target in the second quarter.
— David Rosenberg
- Inflation forecasts cast doubt on the consensus view.
- Potential changes in monetary policy are on the horizon.
- Understanding inflation trends is important for economic strategy.
- The Fed’s response to inflation will have an impact on financial markets.
Inflation eliminated by 2026
Inflation will experience significant disinflation by 2026, surprising many observers.
— David Rosenberg
- Disinflation is expected to be more pronounced than expected.
- Economic conditions suggest a change in inflation trends by 2026.
What will be surprising in 2026 is how pronounced this disinflation will be.
— David Rosenberg
- Understanding current economic indicators is key to forecasting.
- Disinflationary trends may not yet be widely recognized.
- Future economic conditions will influence inflation trends.
- Disinflation forecasts for 2026 cast doubt on current expectations.
Impact on rental rates and CPI
Negative rents will ultimately have a staggered impact on CPI data, contributing to lower inflation.
— David Rosenberg
- Rental rates affect CPI calculations over time.
- The impact of rental prices on inflation indicators is significant.
Once you get past the impact of tariffs…negative rental rates begin to lag and seep into CPI data.
— David Rosenberg
- It’s important to understand the relationship between rent and CPI.
- The impact of tariffs and rental rates will shape future inflation trends.
- The delayed impact on CPI requires careful economic analysis.
- Rental prices are an important factor in forecasting inflation.
Divided US economy
The US economy is experiencing a turning point, with large gaps in market participation and capital investment.
— David Rosenberg
- Economic disparities are evident in market participation.
- The stock market recovery has been uneven, reflecting broader economic trends.
In fact, nearly 40% of S&P 500 members have not grown this year.
— David Rosenberg
- Market polarization brings both risks and opportunities.
- Understanding economic disparities is critical to developing strategy.
- Disparities in capital investment affect economic outcomes.
- The turning point in the U.S. economy requires careful analysis.
Stock market trends
We’re starting to see all kinds of continued divergences in the stock market, and that’s reflected in the economy as well.
— David Rosenberg
- Stock market trends reflect broader economic conditions.
- Stock market divergences indicate potential risks.
- Understanding stock market trends is key to economic forecasting.
- Economic inequality is reflected in stock market performance.
- The uneven recovery in the stock market is impacting investors.
- Strategic decisions about market dynamics require careful analysis.
- Stock market trends provide insight into the health of the economy.
