The current CPI stands at 2.7%, which, although below previous levels, exceeds the Federal Reserve's target of 2%. This situation has sparked internal disagreements among the Fed governors regarding the possibility of implementing up to three rate cuts before the year's end. A potential rise in CPI to 4% could abruptly end any easing cycle. Institutional investors express concerns over market overvaluation, increasing margin debt, and the delayed effects of rate cuts on economic conditions, particularly given that the equity markets have reached all-time highs.
The latest 2.7% CPI print is below prior levels but still above the Fed's 2% target, fueling internal disagreement among Fed governors about whether to initiate up to three rate cuts by year-end.
A potential spike in CPI to 4% due to tariffs or other inflationary pressures could abruptly halt any rate-cutting cycle, especially if core inflation also surprises to the upside.
Concerns are growing among institutional investors about overvaluation, rising margin debt, and the lagging impact of rate cuts on the real economy.
With equity markets at all-time highs and S&P 500 forward P/E around 21, institutional investors are increasingly worried.
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