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Summary of article:
22nd Research believes that the Iran war, rising oil prices, AI-driven cost pressures and the expiration of tariff exemptions may worsen US inflation again, forcing the Fed to raise interest rates several times before the end of next year.
DeBucher, an analyst at 22nd Research, a financial research and strategy company, warned that four concerns that are currently undervalued by the market are the U.S. Can give birth to.inflation Outlook worsens, forcesfederal Reserve (The Fed) will raise interest rates three times before the end of next year.
MarketWatch reported that Debuchel said the first concern is that the impact of the Iran war on rising prices will be magnified, which will affect core prices except energy and food.
Looking at the Fed’s preferred inflation indicator – the personal consumption expenditures (PCE) price index – the annual growth rates of overall and core PCE inflation were 3.4% and 3%, respectively, in August, above the Fed’s stated 2% target.
DeBucher said that from this perspective, the impact of limited oil supply on US prices no longer appears to be a temporary phenomenon. Brent crude oil futures for December, the global benchmark oil price, rose 1.2% intraday to US$115.24 per barrel on the 28th.
Another concern is that the boom in investment in artificial intelligence (AI) has put pressure on the price of electronic devices. US tech giants are issuing shares to raise funds, reducing the risk of a decline in AI capital spending. This means that inflationary pressures arising from the AI boom are unlikely to subside in the short term.
As for the third point, he said it may surprise many investors the most: the end of tariff refunds.
DeBuchel said US President Trump’s “Liberation Day” tariffs were overturned by the Supreme Court in February, prompting the Trump administration to begin rolling them back in May. These tax refunds provide relief this summer, allowing many businesses to avoid passing on the increased costs to consumers. Retailers like Walmart and Target have made it clear that they will use this tax break to ease cost pressures.
But now that the tariff relaxation has been completed, the prices of electronic components continue to rise, and the shock to oil prices has not subsided. “So, now that those same companies have tariff-free refunds to soften the blow, the higher costs will be passed on to consumers,” DeBucher said. He expects its impact to start appearing on PCE inflation figures in the next two months.
The above three reasons for promoting inflation may cause a fourth concern: when companies make annual regular pricing adjustments in January next year, the possibility of price increases increases.
DeBuschel said people have become accustomed to high inflation figures in January and February and early next year may be no exception.
Therefore, 22nd Research estimates that if these four concerns come true, the Fed could raise interest rates three times by the end of 2027 due to higher inflation.
The market generally expects the Fed to keep interest rates unchanged after its decision-making meeting on Wednesday, and then announce a rate hike at its December meeting.
Summary FAQ
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The agency listed four underlying concerns: the Iran war has driven up energy costs, the price of electronic devices has increased due to AI investments, companies have shifted costs after the expiration of tariff exemptions, and regular price adjustments early next year could increase inflation.
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Because during the tax exemption period, companies can use refunds to absorb part of the costs and postpone price increases; However, after the tax exemption ends, cost pressures on electronic products and other goods may be passed directly on to consumers, which will be reflected in the PCE inflation data.
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The market generally expects the Fed to remain on hold this week and may raise interest rates in December; While 22V Research is more pessimistic, they believe that if inflation remains high, the Fed could raise interest rates three more times by the end of 2027.
