Growing Inflation Fears in the US

Inflation concerns have surged, becoming a top worry for economists and market watchers. Many are pointing fingers at the trade and tariff policies implemented by former President Donald Trump's administration as a key driver of this rise.

In a recent post on X, The Kobeissi Letter warned of "rising inflation risks," noting that "72% of CPI components are currently rising above the Fed's 2% target," the highest level in three years.

Data from the chief economist at Apollo Global Management shows a significant increase compared to last year, when only 55% of CPI components were above the Fed's target. The average for 2018-2019 (pre-pandemic) was also lower, at just 57%.

The Kobeissi Letter adds that "Apollo also believes that goods inflation is rising again due to tariffs," and then poses the question: "Are we facing an inflation rebound?"

The Specter of Stagflation Looms

This surge in inflation comes on the heels of the Federal Reserve's recent decision to cut interest rates by 25 basis points, bringing them to a range of 4.00%-4.25%.

Economists at Goldman Sachs are predicting further rate cuts in October and December, with the possibility of a larger cut (50 basis points) if the labor market is weaker than expected.

The current confluence of inflationary pressures and rising unemployment puts the Federal Reserve in a very difficult position. Prominent scholars like Justin Wolfers, an economist at the University of Michigan, believe that the roots of this dilemma lie in the tariff policies enacted by the Trump administration.

Wolfers stated last week that "stagflation is nigh," citing comments from Federal Reserve Chair Jerome Powell, who noted persistently rising unemployment alongside high inflation.

Warnings from Former Officials

Former US Treasury Secretary Lawrence Summers echoed similar sentiments last week, saying, "I think we may be in the early stages of stagflation." He added that the impact of tariffs on the economy "has not fully played out yet."

Summers also pointed to broader risks to market sentiment, believing that consumer and business confidence could further deteriorate. These concerns raise questions about the US economy's ability to sustain growth under these adverse conditions.

Important Note: This analysis is for informational purposes only and does not constitute investment advice. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.