Inflation data reinforces need for Fed to hike by 100 bps, says former Trump economist

Summary

Joe Lavorgna argues that inflation data and the collapse of real interest rates justify a 100-bps Fed hike. He expects bear flattening of the yield curve with the 10-year yield possibly rising to 4.75-4.80%. He attributes current inflation to a supply-chain shock similar to post-COVID, driven by geopolitical events and AI buildout.

• Lavorgna calls for the Fed to hike by at least 100 basis points.
• He cites a 100-bps collapse in real interest rates since the Iran attack.
• Financial conditions remain loose; equities at all-time highs, credit spreads tight.
• Inflation on a three- and six-month basis is trending toward 4%.
• He expects a bear flattening of the yield curve, with long rates rising to 4.75-4.80%.
• The bond market will initially suffer but rally when the Fed eventually eases.
• Lavorgna views current inflation as supply-chain driven, not solely demand-pull.
• He notes that the Fed can wait short-term but will face pressure if conditions change.