Deutsche Bank expects the Federal Reserve's favorite inflation gauge to fall further than the central bank thinks by year-end.
Deutsche Bank, known as Wall Street’s most pessimistic bank, is weighing in on the inflation debate with an optimistic view: It sees the Federal Reserve’s favorite inflation gauge falling even further than the central bank thinks by year-end. The analysis by strategist Gabriele Cozzi and researcher Matthew Raskin, released on Wednesday, is significant because so-called core inflation as measured by the personal consumption expenditures price index has remained stubbornly high for months.
In a note released during the question-and-answer session of Fed Chairman Jerome Powell’s testimony to the House Financial Services Committee on Wednesday, Cozzi and Raskin cited a range of model estimates that suggest core PCE is set to drop to between 3.3%-3.9% on a year-over-year basis by the fourth quarter. That’s down from the 4.6%-4.7% year-over-year readings that prevailed each month from January through April.between 3.3% and 3.
In layman’s terms, slowing economic growth should theoretically help cure the inflation problem, by bringing down demand and price pressures. Gang Hu, at New York hedge fund WinShore Capital Partners, said that based on his own model — which he describes as “albeit, for sure, a flawed one” — the market is implying “a roughly 2.5%” core CPI rate for the next 12 months, as of Wednesday.
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