Market expectations for inflation are falling rapidly, according to Credit Suisse chief stock strategist Jonathan Golub, and the Fed may be at risk of overtightening the economy by only reading “half of the story.”
“Inflation expectations are absolutely collapsing on where inflation is going to be a year or 18 months from now,” Golub said in an interview with Bloomberg on Friday.
He cited signals in the US Treasury market, where the one-year breakeven inflation rate, a measure of inflation expectations a year from now, predicted sub-2% inflation in 2023.
That’s likely being driven by falling energy prices in the US. Henry Hub Natural Gas stood at $8.03 per million British Thermal units at 1:00 pm ET on Friday, down 20% from a previous high of $9.68 this summer.
“Why would the Fed unnecessarily drive us into recession, kill several million American jobs if in fact inflation is heading in the right direction?” Golub said.
And although two recession indicators were flashing in the economy, Golub believed the Fed was “only looking at half the story,” as the indicators aren’t as severe as central bankers may be interpreting.