Inflation

Policy rates are poised to rise across the developed world as central banks are no longer willing to wait out the Iran-US standoff before taking action to combat the inflationary effects of higher oil prices. Outside of Japan, however, we do not think central banks will hike as much as markets expect.

The Fed hiked rates last week, but Fed officials expect this tightening cycle will involve no more than three 25-basis point hikes, contingent on inflation coming down quickly in 2027. We’re inclined to agree.

Labor supply is not meaningfully boosting inflation today, but the net exit of unauthorized immigrants has lowered the bar for stronger labor demand to turn inflationary. Hawkish monetary policy surprises over the coming year are possible.

Inflation, not valuation, is the real threat to this bull market. This four-report series lays out where BCA's strategists agree, where they don't, and what to watch for next.