Morgan Stanley Chief: US Inflation May Peak in May or June, Fed Not Expected to Cut Rates This Year

Following the release of the U.S. CPI data for April, Morgan Stanley's Chief Economist, Michael Gapen, stated in an interview that the current inflationary pressures stem from a confluence of three forces, but the peak may be just around the corner.

The Triple Forces Simultaneously Driving Up April CPI

Gapen indicated that there are three sources for the high CPI readings this month: firstly, the rising energy prices are elevating overall inflation; secondly, the "last ripple" of the tariff pass-through effect continues to inflate core goods inflation, with clothing price data serving as evidence; thirdly, the statistical lag caused by the government shutdown in the fall last year has led to a catch-up in housing rents and equivalent rents, artificially inflating this month's numbers.

It is noteworthy that the secondary传导 effect of energy prices on core inflation has begun to manifest - the increase in airfares and some food prices reflects the early signs of rising transportation costs spreading to a broader range of categories. Gapen stated that the sustainability of this secondary effect is the key variable to watch at present.

When asked about when inflation will peak this year, Gapen clearly stated: measured on a year-over-year basis, the peak may occur in May or June, "we believe we are currently at the highest point of pressure."

The Federal Reserve Will Remain on Hold This Year

Nevertheless, Gapen believes the Federal Reserve will not soon "look through" inflation.

He pointed out that this is the fourth significant supply shock in recent years, and the current inflation presents a mixed characteristic of energy shocks and tariff pass-through, which is difficult to sort out quickly.

"We believe the Federal Reserve will eventually be able to navigate through this cycle, but with a longer lag period. We expect the Federal Reserve to remain on hold for the rest of the year."

Corporate Pricing Power Remains Strong, Margins Not Compressed

Gapen also specifically mentioned that corporations' ability to pass on cost pressures to consumers is quite strong, which is reflected in both profit margin performance and earnings data.

He attributes this to two points: first, strong underlying demand, and second, a monopolistic structure in some industries, with large corporations typically having stronger pricing power. Although it took nearly a year for tariffs to be passed through, corporations have not only passed on costs but also expanded their profit margins during this process.