David Rosenberg: Fed Will Be Slow to Cut Rates Amid Sputtering Economy

Inflationary Trends and Challenges

• 💡 Service sector inflation remains stubbornly high, posing a puzzle for the Federal Reserve despite expectations of cooling goods prices.
• 📉 While the overall trend in inflation is heading lower due to cooling money supply growth and velocity, it will likely take 6 to 12 months to reach the Fed's target.
• ⚠️ Tariffs are identified as a primary driver of near-term inflation, with importers bearing the duty and distributing costs through the supply chain.

Economic Growth and AI's Impact

• 📊 The economy is described as sputtering, with real GDP growth barely above 1% annually, a level previously considered indicative of stall speed.
• 🚀 The generative AI boom and related technology spending are currently the sole underpinning of economic growth; without it, the economy would be in recession.
• 📉 The outlook for the economy remains weak for the rest of the year and into next, with tariff uncertainty and a slowing global economy acting as headwinds.

Federal Reserve Policy and Market Expectations

• ⏳ The Federal Reserve is expected to be deliberately slow in cutting interest rates, which will negatively impact credit-sensitive sectors.
• 🔑 Despite market expectations for a rate cut, Jay Powell is unlikely to signal aggressive easing, especially with labor demand and supply both declining.
• 📈 Equity markets have rebounded significantly, driven by speculation and assumptions about productivity gains from the technology boom, potentially creating a bubble mentality.
• 🏦 Rosenberg anticipates that market-based odds for a September rate cut will be dialed back following Powell's remarks, with the Fed chairman focused on preserving his legacy.