Uruci of T. Rowe Price Confident Inflation Will Hit 2%

Summary

T. Rowe Price Chief US Economist Blerina Uruci discusses the Fed's reaction function under Chair Kevin Warsh, the path for inflation, and the role of productivity and AI. She argues the Fed is temporarily prioritizing inflation and that resilient productivity should bring inflation to 2% without highly restrictive rates. She also sees long-end Treasury yields responding to Fed credibility and expects more rates volatility.

• Uruci says markets now better understand Warsh's reaction function after his Jackson Hole messaging.
• She sees the Fed temporarily acting like a single-mandate central bank focused on inflation.
• She believes wages are not an upside risk to inflation because productivity growth is resilient.
• She is optimistic on US productivity and expects inflation to fall to 2% without restrictive rates.
• She thinks AI will ultimately be more disinflationary than inflationary.
• She ties long-end Treasury yields to Fed credibility and warns rate cuts may not lower long-end yields.
• She expects more US rates volatility given no forward guidance and volatile data.