Immaculate Disinflation!

In congressional testimony last week, Fed Chair Powell sounded more dovish than he has this tightening cycle. That clinched financial markets’ growing expectation that the Fed would cut the federal funds rate as early as September. We believe so too. Now that inflation is closing in on the Fed’s 2.0% target, Fed officials are increasingly focused on keeping the unemployment rate low. … From today’s vantage point, it’s clear that “immaculate disinflation”—the lowering of inflation without a recession—is possible, as we had predicted back in September 2022.