US inflation is likely to be “much stickier” and could last a decade, according to Bill Smead, chief investment officer at Smead Capital Management.
Wall Street braces for key inflation data later Tuesday, when the Labor Department releases its January report consumer price index. It is a very followed inflation gauge which measures the cost of dozens of goods and services spanning the entire economy.
“The excitement … right now is the hope that we’ll pull a friendly Fed out of a soft landing, and we don’t think that will be the case,” Smead told CNBC’s “Streets Sign Asia.”
“We think inflation is going to be a lot stiffer and longer lasting – in fact, a decade because in the United States we have incredibly supportive demographics.”
Earlier in February, the Federal Reserve raised its benchmark interest rate by one quarter percentage point and gave little indication that he is nearing the end of this hiking cycle.
Control inflation
Smead pointed out that the Fed will struggle to get inflation under control despite recent rate hikes.
“We have 92 million people between the ages of 22 and 42, and they’re all going to spend their money on basic necessities over the next 10 years, whether the stock markets are good or bad,” Smead said.
“They’re just going to live their lives. The economy should be pretty good and the Fed is going to have a hard time controlling inflation,” he added.
For now, investors seem to be betting on a solid CPI print Tuesday that shows inflation is cooling and a pause or pivot in Fed rate hikes may be near.
On the other hand, analysts warned, failure will likely signal the Fed raising interest rates even further.
Economists expect the CPI to post a 0.4% increase in January, which would translate to annual growth of 6.2%, according to Dow Jones. Excluding food and energy, the so-called core CPI is expected to increase by 0.3% and 5.5%, respectively.
Stock futures fell Tuesday morning as investors anticipated inflation data.
Futures contracts linked to the Dow Jones Industrial Average slipped 25 points, or 0.07%. In the meantime, S&P 500 Futures Contracts slightly lowered, and Nasdaq-100 Futures Contracts decreased by 0.12%
– CNBC’s Jeff Cox contributed to this report