The Fed has to hike interest rates this year, says SMBC's Joe Lavorgna

Summary

Natasha Sarin expects near-term upside in oil prices due to the Iran conflict, while Joe Lavorgna argues the Fed will need to hike interest rates this year given strong growth and sticky inflation. Both economists agree that incoming Fed chair Kevin Warsh will prioritize inflation and raise rates, with Lavorgna noting that such a hike might actually cause long-term bond yields to fall initially.

• Natasha Sarin sees upward pressure on oil and gas prices in the coming weeks from the Iran conflict.
• Joe Lavorgna believes the economy is booming, inflation is elevated, and easy monetary policy requires Fed rate hikes this year.
• Both guests expect Kevin Warsh as new Fed chair will hike rates, rejecting the idea that other tools can substitute.
• Lavorgna argues that raising the fed funds rate could paradoxically cause long-term interest rates to fall.
• Sarin highlights that tariffs have added to inflationary pressures.
• The discussion contrasts the Fed’s primary tool (fed funds rate) with untested alternative tools.
• Markets are wrestling with the implications of a hiking cycle amid strong nominal growth.