‘Large Inflation Downshift’ Coming, JPMorgan Says. But…
"The baseline remains," JPMorgan strategists wrote Monday, summarizing the bank's views across assets and markets.
At least as it relates to asset allocation, that baseline became marginally less constructive for risk last week, when the bank trimmed their equity Overweight and their bond Underweight, while remaining Overweight stocks and Underweight bonds overall. They cited "increasing risks around central banks making a hawkish policy error and geopolitics," factors mentioned by Marko Kolano
Based on the normal spending patterns of those in the middle 70% of the income distribution curve, I estimate that ~60% of goods and services normally purchased are sufficiently sticky to prevent their overall inflation rate from falling below 6%. The other 40% of expenditures may be held to the 2% target, meaning the average basket will stay at 4.5–5% inflation, no matter how vigorously the Fed attacks rates, at least until the supply chain becomes rebalanced and people adjust their spending to account for lost purchasing power.
Well summarized!