Tom Lee Predicts Fed's Hawkish Stance to Retreat... "Inflation Will Drop to 3% in 6 Months"

▲ US Federal Reserve (Fed), Interest Rates/AI Generated Image

US Treasury yields have risen to a level that threatens the stock market. Tom Lee, co-founder of Fundstrat, offered an optimistic outlook, analyzing that inflation will recede within the next six months, leading to a retreat in the Federal Reserve's (Fed) hawkish stance.

Appearing on the US economic news channel CNBC, Lee commented on the surge in Treasury yields and stock market volatility. Lee assessed, "If a disappointing trend emerges, it will be short-lived, so it should be seen as an opportunity." He explained that there are no signs of market exit or recession.

Lee pointed out that rising Treasury yields are restructuring the competitive landscape among companies. Lee emphasized, "Higher yields boost the competitiveness of stronger companies." He explained that large-cap stocks like the Magnificent 7 can easily raise capital even when interest rates rise, while competing companies face significant difficulties in securing funding.

He also stressed that inflation is highly likely to slow sharply within six months. Lee cited the new calculation method for Personal Consumption Expenditures (PCE), to be released on September 30, as a basis. He explained that this could result in a 20-40 basis point (bp, 1bp=0.01% point) year-over-year decline, bringing the inflation rate down from 3.4% to 3.0%. He added that the effects of tariffs, the surge in flash memory prices, and the inflation-pulling effect of stock portfolio fees are gradually diminishing.

He also provided forecasts for oil and housing prices. He predicted that if oil prices remain around $100 per barrel, they would not add further burden to inflation over the next six months. He also anticipated that high interest rates would curb housing price increases. Regarding the rise in flash memory prices, he noted that it only increases the cost of powering artificial intelligence (AI) and has a minimal impact on the daily lives of general consumers. He analyzed that it is unlikely to be a factor justifying the Fed's monetary tightening.

Ahead of the release of macroeconomic indicators, market attention is focused on the Fed's policy path regarding inflation and interest rates. The market is keenly watching whether stable inflation in the second half of the year will materialize and whether expectations of a Fed rate cut can act as a driving force for a stock market rebound.

[Article Key Summary]

-Tom Lee, co-founder of Fundstrat, predicted a decline in inflation and an easing of the Fed's hawkish stance within the next six months.

-He diagnosed that rising Treasury yields provide a structural benefit to large-cap stocks like the Magnificent 7, which have superior fundraising capabilities.

-He analyzed that the inflation rate is highly likely to slow to the 3% level due to the revision of the PCE calculation method and the disappearance of temporary cost factors.

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