Outlook for Inflation, Oil, and Tech

Darrell Cronk · Wells Fargo

The Fed must keep hiking; inflation and a strong economy mean policy is not easy.

Core PCE is at 3.6% against 3.4% real GDP growth and unemployment at 4.2% with no jobless claims. He argues this is not a recipe for easy policy. The Fed's own press conference says it will deliver 2% inflation, but current prices are not delivering that, so he says it is time to move on with hikes.

“That's not a recipe for easy policy. Right? ... So I think the Fed needs to get on with it. We're... He keeps saying we're gonna deliver 2%.”at 3:59

Ira Jersey · Bloomberg Intelligence

The Fed will keep hiking at a slow pace until inflation trends lower.

He reads the prepared remarks as the committee's real view. They gave forward guidance that they will stay hawkish and keep raising rates at a slow pace until inflation falls. He notes the cadence is slower than some want. The Fed is wary of the jobs market in a low-hire, low-fire environment, so it will not hike aggressively and risk a recession.

“we focus in on the prepared remarks because that is the committee's view... we're gonna remain hawkish. We're gonna continue to increase interest rates at, this slow ish pace, but they're going to keep going until they see inflation trends lower.”at 10:30

Darrell Cronk · Wells Fargo

Ten-year Treasury yield to reach about 5.75% next year, possibly 6%.

After a short-covering rally pushed the 10-year down to about 5%, he expects the long end to move higher. He sees the 10-year north of 5.50% next year, more likely around 5.75%, and says 6% is possible. This is his firm's view, and it is tied to the Fed staying tight and to heavy issuance.

“We think next year, the tenure is north of five fifty, probably more like five seventy five. Yes. Okay. So six is possible.”at 4:58

Ira Jersey · Bloomberg Intelligence

Treasury yields should settle near 5%, tied to about 6% nominal GDP growth.

His analysis starts from expected nominal GDP for the next two or three years, which sets the baseline for long-term rates. With about 6% nominal GDP, Treasuries should yield about 5%, with a liquidity premium, and corporate yields for non-AAA issuers should sit near or above 6%.

“we start all of our analysis with what do we think nominal GDP is gonna be for the next two or three years... If you have 6% nominal GDP, you expect five ish percent treasury yields”at 9:15

Ed Morse · Hartree Partners

Product tightness persists; refining cannot quickly recover, so diesel prices stay high.

Inventories are at about their lowest in a decade in days of forward demand cover, and the tightness is worse for products than for crude. Refineries are not delivering from the Middle East and Russia, and California and European refineries have closed. Refining capacity cannot come back quickly because companies do not want to invest in it, so diesel prices keep rising.

“There's no quick fix and you can't bring refining back because people don't want to do it and it's a dicey investment to make.”at 22:16

Ed Morse · Hartree Partners

Oil price premium may be limited as oil intensity of GDP falls and OPEC members produce more.

Oil intensity of GDP has fallen sharply, and China and the wider world have found substitutes for oil as a transport fuel. Global oil demand fell last year even as GDP grew. OPEC is effectively dead, and its largest members want to produce more, which can offset the risk from a Hormuz disruption. So a lasting premium is only yes and no.

“we're seeing a lower global oil intensity of GDP... led by China... We know that OPEC is dead... the largest members of OPEC that want to all produce more oil.”at 26:04

Darrell Cronk · Wells Fargo

Credit investors should stay up in quality and keep duration short.

His firm has been short duration in credit for sixteen straight months. He argues that with long-end yields rising, investors should stay in higher-quality credit and avoid long duration.

“I still think on credit, you gotta be up in quality, and we have now been for sixteen straight months short duration.”at 4:48

Darrell Cronk · Wells Fargo

Stocks can still do well despite higher yields because earnings growth is strong.

Even with the ten-year at 5.50% to 5.75%, he thinks stocks can do well. The reason is earnings: this will be the third straight quarter of 25% earnings growth and the eighth straight quarter of double-digit growth. If that continues, stocks can do fine, and multiples would have to contract.

“We still think stocks can do well. Even if you got to a five fifty, five seventy five, ten year... because the earnings are so strong... third quarter in a row we'll have 25% earnings growth, and the eighth quarter in a row we'll have double digit earnings growth.”at 7:54

Ira Jersey · Bloomberg Intelligence

Headline CPI will be back near 2% by next summer on base effects.

Base effects from last year's price moves will push headline CPI to about 2% at this time next year and even by next summer. He thinks the Fed is hiking now to buy time, because it can expect inflation to be near target by mid-next year.

“I think they're trying to buy a little bit of time here too... on base effects, we're going to be at 2% headline CPI at this time next year and actually even next summer.”at 12:24

Ed Morse · Hartree Partners

The US has abandoned global leadership and lost soft power, so the world is G-zero.

Citing Ian Bremmer, he says the world is in a G-zero state with no global leadership. He argues the US has abandoned leadership and irritated foes, friends and neighbours alike. He says the president does not believe in soft power, which worked dramatically for the US, so restoring it will take more than begging.

“we're in a g zero world... The US has abandoned leadership, has irritated foe and friend and neighbor... We have a president who simply doesn't believe in soft power.”at 23:17

Ed Morse · Hartree Partners

Optimistic the Strait of Hormuz can reopen because Iran's leadership is under strain.

He says Iran is in a very difficult situation. Its leadership is split, and no one is calling it quits as the original supreme leader nearly did. Officials from the IRGC generation who got rich and now control the supreme leader are in a dicier position than before. That is the basis for his optimism that the strait can be reopened.

“I'm optimistic we could open it again. Part of that optimism at the extreme is to remember that Iran is in a very difficult situation.”at 25:05

Jeetu Patel · Cisco

AI monetisation is real: end-user and cloud revenues show someone is paying.

He answers who pays for AI by pointing to Anthropic's end-user revenue, which is being paid for directly. He adds that Azure and Google Cloud both report cloud revenue, which shows the infrastructure is also being paid for. Once trust and security improve, he expects a large jump in usage.

“If you look at just what Anthropic revenues are, that is the end user revenue that is being paid for. And then if you look at what both Azure and Google Reporter as revenue on the cloud, that shows you that the infrastructure is also getting paid for.”at 32:03

Jeetu Patel · Cisco

AI agents will shift retail business models by aggregating consumers between retailers and shoppers.

Retailers now sell direct to consumers through advertising, upselling and cross-selling. With agents, consumers will have to go through an agent that aggregates offers across many retailers and recommends products. He says that changes the business model, and firms need to plan for it.

“Absolutely. Think about a retailer. In the past, a retailer would typically go direct to a consumer... Now you might have an agent that you have to talk to. That agent aggregates the information across multitude of retailers”at 35:03

Libby Cantrill · PIMCO

Republicans are likely to lose the House; the Senate is possible but a hard hold, with 2026 a protest vote.

Cantrill says Republicans are capitulating on the House, with no one seriously talking about keeping it. The national environment is very bad for Republicans. She sees a path to keeping the Senate only with strong turnout in places like Iowa, Alaska and Texas. She advises clients not to read the 2026 results as a guide to 2028, since a Democratic win would be more a protest vote than an endorsement of their ideology.

“There's a real capitulation among Republicans about the house. I mean, no one really is talking about keeping the house... the national environment is just so bad right now for Republicans.”at 41:26

Libby Cantrill · PIMCO

State-level anti-data-center politics could add moratoriums and costs, creating friction for the AI buildout by 2027.

Cantrill argues politics increasingly drives AI policy and that the market underestimates the friction the AI infrastructure buildout will face by 2027. Both chambers and 36 governorships are up for election, and many governors are running on anti-AI, anti-data-center platforms. The easiest way for them to show it is not rhetoric is a moratorium, as New York has done. Even without a moratorium, hyperscalers and data center developers face higher costs because they must invest more in host communities to win approval to build.

“I mean, this is something I do think that is underappreciated by our client base is just how bad the politics are on AI and how oftentimes politics leads policy. And I think people are underestimating how much friction there could be in this AI infrastructure build out come 2027.”at 42:07

Libby Cantrill · PIMCO

Big tech will face heavy congressional oversight under either House outcome, amid public distrust of the sector.

Cantrill expects heavy congressional investigation over the next two years, with big tech a major focus in both chambers. If control flips, she expects obstruction that blocks new legislation. She also argues people do not trust big tech and increasingly see it as a boogeyman, comparing tech to big tobacco in public perception. Data centers, she says, now stand for affordability and existential concerns as well as big tech distrust, so voters will push back even when developers promise benefits.

“Everything will be investigated... to big tech. I think big tech is going to have a huge focus in both chambers.”at 43:28

Libby Cantrill · PIMCO

US federal spending will keep rising regardless of which party wins Congress, with the mix shifting by outcome.

Cantrill argues that if both chambers flip, obstruction will block new legislation such as the proposed $5,000 checks. Spending would still rise, because her firm expects more spending whoever wins Congress. Only the composition changes: a Republican-led Congress would tilt toward defense and health care, and a split Congress would push spending toward more defensive areas, mainly health care and defense.

“And then I think interestingly, there'll be more spending. And this is something that we think there'll be more spending regardless of who wins congress.”at 43:48