A few of the financial market’s best minds on U.S. inflation are coalescing around the view that core readings, which matter most to Federal Reserve policy makers, are set to fall in a matter of months. One of them is Tim Magnusson, chief investment officer of the fixed income relative value strategy at Minnesota-based Garda Capital Partners. A year ago, he accurately predicted that the annual headline rate from the consumer price index would be above 7% at the end of 2022. .
Magnusson’s comments came on a day in which four central banks in Europe all raised interest rates, putting the threat of persistent worldwide inflation back on the radar for investors. On Wednesday, Deutsche Bank strategist Gabriele Cozzi and researcher Matthew Raskin said they see the Fed’s favorite inflation gauge — the core personal consumption expenditures price index — falling even further than the U.S. central bank thinks by year-end.
Core readings of inflation matter most to the Fed because they tend to reflect a purer read on inflation that isn’t distorted by the volatile items of food and gas. Based on the CPI, core inflation has remained stubbornly stuck at 0.4% or higher on a monthly basis from December to May. The counterpart PCE index has seen its core readings stay between 4.6%-4.7% on an annual basis during the first four months of this year.