Wolfe Research said financial markets are viewing the recent surprise rise in US inflation as a temporary factor, not the beginning of a structural shift. In a research note, the firm noted that while inflation measures such as the CPI, Core CPI, PCE and Core PCE are all near or above 3% year-over-year, market reaction remains limited.
According to Wolfe, investors expect continued weakness in home prices and rental rates to offset the impact of tariffs on goods prices. They view the price pressures from tariffs as more of a one-off, rather than a permanent shift in inflation expectations. The firm also agrees that the underlying inflation trend is unlikely to deviate too much from its current target unless a larger and more sustained shock occurs.
Historically, Wolfe noted that the CPI rate has averaged 2.9% since 1983, in line with the current reading of around 3%. Thus, inflation at 3% is not unusual compared to the long-term trend, even though the Federal Reserve’s official target remains at 2%.
With inflation stable around 3% and no strong evidence of rising price pressures, Wolfe expects other factors to take over the primary role in determining monetary policy and market direction.
