The Federal Reserve's next policy move is more likely to be an interest rate hike than a rate cut due to economic conditions.
The US economy is fundamentally strong, demonstrated by the most robust period of job growth in 2024, and is resilient to external shocks like geopolitical conflict.
Inflationary pressures are re-accelerating, as shown by the PCE index rising from a 2.6% bottom to 3.3%, invalidating the narrative of a steady decline.
Producer prices are a key area of concern and are expected to show more elevation than consumer prices in upcoming data releases.
A year-on-year core CPI reading in the 2.6% to 2.7% range would be a very positive signal for the Fed, indicating a significant cooling of inflation.
April 2023
Harrison states the Federal Reserve's preferred inflation gauge, the core PCE price index, reached its bottom at 2.6%. Note: Some claims incorrectly cite the year as 2025.
Post-April 2023
Over the subsequent 14 months, Harrison notes that the core PCE price index has re-accelerated from its 2.6% low to a recent reading of 3.3%.
Early-Mid 2024
Harrison describes the most recent three-month period of job gains as the strongest since the beginning of 2024, indicating significant economic momentum.
Recent
Following a strong jobs report, Harrison observes that the market has priced in the possibility of a Federal Reserve interest rate hike occurring as soon as the end of 2024.
Upcoming
Harrison anticipates the release of new inflation data, expecting the Producer Price Index (PPI) to show a more pronounced increase than the Consumer Price Index (CPI).
▶Hawkish Federal Reserve OutlookJun 2026
Harrison's central thesis is that the Federal Reserve's next move is more likely to be a rate hike than a cut. He argues that persistent inflationary pressures, evidenced by the re-acceleration of the PCE index, combined with a robust economy, give the Fed the capacity and justification for further tightening.
Investors should reconsider the market consensus of impending rate cuts and instead price in a non-trivial probability of a rate hike, which would have significant implications for equity valuations and bond yields.
▶Re-accelerating Inflationary PressuresJun 2026
Harrison emphasizes that inflation has not been vanquished, pointing to the PCE price index bottoming out and rising again. He specifically anticipates that producer prices (PPI) will show a more significant increase than consumer prices (CPI) in the near term, suggesting that inflationary pressures are still present in the production pipeline.
Analysts should monitor PPI data closely as a leading indicator for future consumer inflation, as Harrison's view suggests that cost pressures on businesses could translate to higher prices for consumers down the line.
▶Resilient US EconomyJun 2026
A key pillar of Harrison's argument is the underlying strength of the US economy. He highlights that the last three months of job gains were the strongest since the start of 2024 and notes that geopolitical conflicts have not negatively impacted consumer spending or job formation, providing the Fed with a strong mandate to focus on inflation.
The economy's resilience suggests that a 'soft landing' may be less of a concern for the Fed than upside inflation risks, shifting the policy calculus towards maintaining a restrictive stance for longer.
▶Market Expectations vs. Economic RealityJun 2026
Harrison frequently references market and economist expectations for key data points like CPI and PPI. He notes that following the strong jobs report, the market quickly priced in the possibility of a rate hike by the end of 2024, showing a rapid adjustment to incoming data.
This theme highlights the market's sensitivity to strong economic data and suggests that any future data releases indicating persistent strength or inflation could trigger further hawkish repricing in financial markets.