Boardrooms Sunday Review 500 companies, at swanky Wall Street bars, and in the halls of business schools across the country, there’s been a consistent debate over “what’s next?” U.S. inflation The past year.
Recent months have seen a growing number of economists and business leaders argue that sky-high consumer price inflation is over. A separate group of experienced economic minds thinks that history has shown this. inflation won’t be so They are easy to manage.
Arguments made by Wharton Professor Jeremy Siegel And the billionaire hedge fund manager Bill Ackman These ideas have been displayed over the past week.
Siegel said on Monday that he believes the Fed’s six interest rate hikes this year Have already slayed inflation, and tHe data just doesn’t show it yet.
“I think basically 90% of our inflation is gone,” he told CNBCThis is a sign of a slowing housing market as evidence.
But Bill AckmanPershing Square Capital’s founder and CEO, Jeremy Sullivan, stated last week that he believed inflation It is far from under control.
“We think inflation is going to be structurally higher going forward than it has been historically,” He said this on a Nov. 17 earnings call Investors will agree with me that the clean energy transition and deglobalization are important trends. will It can cause cost increases to continue.
Ackman Siegel Two heavyweights are involved in high-stakes events inflation There is a lot at stake in this debate. Whoever wins could have a major impact on everything, from the amount of your 401(k), to how much you mortgage payment. Here’s a look into their arguments.
Ackman’s structural inflation Equity and credit risk
Inflation, as Measured by the consumer price Index (CPI), increased 7.7% from a year ago in October. While that’s well below the 9.1% peak seen in June, it’s a far cry from the Fed’s 2% target rate.
Many business leaders and economists who are hawkish argue that even after raising interest rates aggressively, this will not stop them from being hawkish. yearThe Fed still has a lot to do in order to be successful. inflation You are truly in control. And Bill Ackman Believes they may not You can reach 2% in no time.
“We do not believe that it’s likely the Federal Reserve is going to be able to get inflation back to a kind of consistent 2% level,” Last week, he spoke to investors.
He continued to say that there are structural changes that will continue to affect the global economy over the long term, such as rising wages, deglobalization, and clean energy transition. will increase companies’ costs and keep inflation In the coming years, it will be increased.
Particularly: Ackman argued that on-shoring—the relocation of previously foreign business operations back to the U.S.—could raise labor and material costs for U.S. companies and increase inflation.
“We will have to ultimately accept a higher level of inflation that has to do with deglobalization,” He said. “We are a big believer in the thesis that a lot more business is going to come closer to home and it is more expensive to do business here.”
These structural changes are long-term and will continue to be a catalyst for many more. will Exacerbating inflation, Ackman Believes that the Fed will a firm stance on interest rate increases. He explained that rising rates are a good thing. will This will only push long-term bonds’ interest rates up, and that is not the goal. “a risk for equities.”
Siegel’s shelter deflation and soaring stocks
Siegel He and other more dovish economists agree that the worst of inflation It is over.
They point out the fact that shelter prices CPI is one of the most commonly used measures of consumer confidence. inflationNote that the housing market is already slowing.
There are currently 28 once-hot housing markets in which home prices have fallen 5% or higher from their peak. year Mortgage applications for purchase of mortgages have declined 41% in the same time frame as ago.
Siegel says The Fed is not paying attention to the ailing housing market, as they look at CPI data that is stale. This measures changes in shelter prices over time with a lag.
“My point has been housing has declined but the way the government computes it is so lagged that it will continue to show increases,” He elaborated.
The Wharton Professor argues that the next months will bring new data, including those from the Case-Shiller home price index, will The Fed decided to stop raising rates because they could not properly show the deflation caused by the housing market.
“It’s taken way too long for the Fed to get it and they haven’t gotten it yet that inflation is basically over, but they will, and I think they’re going to get it maybe very late this year or early next year,” He said. “And I think as soon as they get it you’re going to see a big increase in equity prices.”
Siegel Believes that the Fed will recognize that inflation It is slowing down and will halt rate increases or cut rates. will spark a 15% to 20% rally in the S&P 500.
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