Throwing in the towel on transitory

Phil: I'm Phil Orlando, chief equity strategist at Federated Hermes in New York.

Interviewer: What is your view on the long-term outlook for inflation?

Phil: The Federal Reserve has clearly lost the tug-of-war between transitory and sustainable, so in a word we think inflation's heading higher. You look at the nominal CPI, it's 7.9% year-over-year in the month of February, that's a 40-year high. You look at the Core Personal Consumption Expenditure Index, which is the Fed's preferred measure of inflation, that's sitting at 5.2% year-over-year in January, that's a 39-year high. Now these numbers, in our view, reflect overly generous fiscal stimulus and a supply demand in balance coming out of the pandemic over the last 15 months. They do not reflect Russia's invasion of Ukraine and the spike in energy prices that we've seen from 90 dollars a barrel to 115 dollars a barrel over the course of the last month. So, I think the Fed was absolutely right to fully throw in the towel on transitory because inflation, in our view, is going higher. The core CPI is probably gonna hit 10% by the middle of this year. The core PCE is probably gonna be up at 6% by the middle of the year, and that's three times higher than the Fed's target of 2%. Our hope is that inflation will peak somewhere in the middle of the year and then start to grind lower back to a more normal level looking out over the next two or three years.

Disclosures: Consumer Price Index (CPI): A measure of inflation at the retail level. Personal Consumption Expenditure (PCE) Index: A measure of inflation at the consumer level. Views are as of March 24, 2022 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Federated Advisory Services Company 22-30097 (3/22)