Just a matter of time before the Fed hikes, says fmr. Trump economist

Summary

Joe Lavorgna, former Treasury economic counselor, argues that the Iran conflict is a prolonged supply shock driving persistent inflation and that the Fed will eventually need to raise rates. He distinguishes the minimal inflation impact of tariffs from the self-inflicted oil shock, notes very stimulative financial conditions, and discusses potential longer-term changes under incoming Fed Chair Kevin Warsh. An opening panelist remarks that energy stocks remain attractive despite commodity moves, with rotation away from semis.

• Joe Lavorgna warns the Iran conflict creates a supply shock akin to a smaller-scale COVID, with fertilizer costs up 30-40% and other commodities rising.
• Inflation is drifting further from the Fed's target, and the economy remains strong with accelerating job growth.
• Lavorgna contends the Fed will need to hike rates because history shows inflation does not fall 1 point or more without rate increases.
• Financial conditions are very stimulative, with no negative signal from equities or credit spreads, making real rates increasingly negative.
• He separates the tariff effect (one-off price level adjustment, looked through by the Fed) from the ongoing oil shock that risks lifting inflation expectations.
• A Fast Money panelist calls energy stocks a place to be regardless of underlying commodity price, highlighting rotation from semiconductor and industrial names.
• Incoming Fed Chair Kevin Warsh is expected to introduce gradual but substantial changes to communication and procedures over time.
• Lower oil prices could bring disinflation, but the war has fundamentally altered the outlook.