Investment Implications
It should go without saying that this forecast could easily be upset by shocks or policy mistakes. A geo-political or environmental shock that boosted energy prices is one example. Inappropriately stimulative fiscal policy or new tariffs are others. However, the bottom line is that, despite the fears of some Fed officials, the most likely path for inflation from here is not upwards or sideways but rather down. If inflation continues to slide, it should provide further support for U.S. bonds. If, as we hope and cautiously expect, inflation continues to slide without a recession, it should provide even greater support for U.S. stocks.
David Kelly is chief global strategist at J.P. Morgan Asset Management.