Inflation will remain stable unless employment improves, says strategist

The Producer Price Index (PPI) was higher than expected for April, signaling that inflation remains stubborn. Allspring Senior Portfolio Manager Bryant VanCronkhite joins Market Domination Overtime to discuss upcoming economic data and what the Fed needs to keep in mind to reduce inflation.

Bryant VanCronkhite identifies a major challenge for the Fed: “I think inflation could remain persistent, largely because the problem here is the employment situation. The quality and quantity of labor does not meet the needs of small and large businesses to move their businesses forward. And so, unless the employment situation is corrected, I think inflation is going to remain a little bit stubborn right now. »

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This message was written by Nicolas Jacobino

Video transcription

Well, markets are closing higher today, today’s big economic data, another higher than expected inflation report this time on the wholesale side, producer prices in increase more than expected in April arrive before tomorrow.

CP I, Consumer Prices, to learn more about what this means for investors.

Let’s call on portfolio manager Bryant Van Cronkite throughout the spring.

Thanks to be here.

THANKS.

So it’s not the relief that people were perhaps hoping for today on the inflation front.

But I know that CP I is considered more important in the eyes of the market.

But how do you sort of weigh the PP I ratio under the covers?

The PP I’m talking about may have been more harmless than people feared on the surface.

So I think that’s a good sign, because maybe for people who are worried about continued inflation in the market, I think it went up today.

But there is a lot of pressure on CP I tomorrow.

I think the market is clearly hoping that the Fed can get through this ever-closing window with a possible rate cut, but inflation has to cooperate and every data point we have going forward is another chance to that this window suddenly closes. them.

So tomorrow is a big day, the market could be volatile and we will see what it has in store for us.

And Brian, are you in the camp that is convinced that inflation, you know, the trajectory that we’re getting back to Jay Powell’s target and that he’s capable of reducing this year.

In fact, I’m afraid we’re not getting there at pace.

The market thinks we will get there.

I think inflation could remain persistent largely because the problem here is the employment situation, both the quality and quantity of labor are not meeting the needs of small and large businesses and at what they need to move their businesses forward.

The story continues

And so, unless the employment situation is corrected, I think inflation is going to remain a little bit stubborn right now.

The only thing that could possibly change that in my opinion is if the consumer weakens more quickly, which would put pressure on the GDP, put pressure on the economy, but that’s not a good situation, but this could be our reality.

RIGHT?

I mean, that’s what we’ve always heard from people, over and over again.

If the Fed cuts rates for the right reasons, right, then the market can still rise.

If it’s cut for the wrong reasons, quote unquote, there’s too much slowing down, they won’t be judged on what they do, but on the context in which they do it correctly.

And if we see a drop in GDP and a rise in unemployment, it doesn’t matter if they cut, they’ve missed that forward window.

Now they are reacting and it will not be a good thing for the markets.

So, on the consumer spending side, are you seeing any worrying signs?

It seems that companies are telling us anecdotally that they are seeing a slight weakening, with the consumer being remarkably resilient for much longer than I think most of us anticipated, certainly longer than I have expected. had planned.

But our channel checks this week even show that it’s falling further and further across the income cohort.

So it started as maybe the lower end consumer starting to make tough choices moving to more value categories, moving to private label.

We’re hearing now this week that many of our grocery chains and restaurants are checking.

Even in retail, that consumer now makes up the $100,000 household, which means it’s growing now and as it moves into the middle income category, that’s when the Things are getting a little riskier for me.

So I’ve been getting more and more worried over the last week or two.

I mean, I should, Brian.

You know, we talked a lot today on the Biden show, about imposing these new tariffs.

And obviously a lot of this is just, it’s just raw politics, right?

You’re trying to win votes in key states, it kind of puts the focus back on the election.

To what extent are your clients asking you about this right now, Brian, because they recognize that elections bring volatility.

But at the end of the day, what we’re hearing today is more politics and less economics, right?

Tariffs currently affect around 8% of imports from China.

It’s not, it wasn’t a major news event.

Customers are just worried about what happens in the future, right?

The regulatory environment for many industries is important.

And it seems like every time someone else comes into the White House, we cancel the whole thing.

We’ve just done the last four years and we’re starting again.

And it’s frustrating for investors.

This is frustrating for many people, in all fields of work.

And so when people want stability, they’re not going to get it right away.

So we’re just going to plod forward and the way to do that is to focus on what a business can control.

Our approach to investing is really about understanding how a company’s financial freedom, measured by its balance sheet, allows it to adapt to any market environment.

The key for investors right now is to focus on what you can control, use balance sheets to measure it, and then continue investing that way.