'Teflon' Inflation Won't Stick, JPMorgan's Kelly Says

Summary

David Kelly, JPMorgan Asset Management's chief global strategist, argues that US inflation is on a disinflationary path, helped by lower year-over-year tariff costs and eventual oil price declines if the Strait of Hormuz conflict eases. He says wages are rising below CPI, preventing a wage-price spiral and making inflation 'Teflon.' Kelly says the Fed should stay on hold and warns that rate hikes could matter for leveraged financial markets even though the economy is less rate-sensitive.

• Kelly sees a clear disinflationary trend beneath crosscurrents in the CPI report.
• Lower year-over-year tariff costs should ease inflation going forward.
• Oil prices are expected to eventually fall if the Strait of Hormuz conflict resolves.
• Wages are rising 3.2% against CPI at 3.4%, reducing inflation stickiness.
• Kelly thinks the Fed should stay on hold and not rush disinflation.
• The Fed's plan to communicate less is called the wrong track, with Jackson Hole a key event.
• Rate hikes could impact financial markets through leverage and a shift to safety, more than through the economy.