The last leg of inflation fight remains tough

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The CEO of Kuwait Petroleum Corporation said global energy demand will outstrip the rate of population growth through 2050. “That means that we’re going to require more energy intensity for the population in the world,” Shaikh Nawaf al-Sabah said at an energy conference, contradicting forecasts that demand will peak by 2030.

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The final leg of the inflation fight is proving to be difficult for the Fed.

“The Fed’s inflation target is 2%, and the bottom line of the inflation discussion is that inflation has started to move sideways at 3%, and this is a problem for the Fed,” said Torsten Slok, chief economist at Apollo Global Management in a note.    

The Federal Open Market Committee will likely use this week’s policy meeting to debate on whether inflation continues to cool or if progress has stalled.

While the central bank is widely expected to keep rates unchanged, investors will draw careful scrutiny for any clues about the timing of future rate cuts.  

Half of respondents in a CNBC Fed survey indicated the biggest risk is that the Fed cuts too late, while 46% worry the central bank will cut too early.

Still, continued high inflation is judged to be the biggest risk to economic expansion.

Despite the latest run of hot inflation data, market watchers still expect the Fed to stick to three rate cuts. 

“We are sticking with three this year, starting in June,” Joe Kalish, chief global macro strategist of Ned Davis Research, said in a note.

“But it would only take two participants to change their views to have the median fall to two cuts from three.”