Inflation Fears Stalk Presidential Politics and the Markets

Inflationary pressure and presidential politics

President Biden and Donald Trump dominated Super Tuesday, setting the stage for a rematch of the 2020 election. One topic that’s high on the agenda for voters: Inflation.

That means all eyes will be on Jay Powell, as the Fed chair makes a two-day appearance on Capitol Hill this week, for any sign of what’s next on rate cuts.

Inflation is kryptonite for any politician, and especially for Biden. Trump again pounded the president on high prices, an issue that’s lifting the Republican in polls even as a range of indicators show that the economy is performing strongly.

(The White House is putting the blame on corporations that “try to rip off Americans.” Watch for that theme at Thursday’s State of the Union address.)

Powell will appear before the House on Wednesday and before the Senate on Thursday. Data published in recent weeks shows that jobs are plentiful, wages are rising and consumers are still spending. Analysts have upgraded their economic forecasts, raising hopes that a soft landing is likely.

But market pros see warning signs. Concerns remain that inflation will stick above the Fed’s 2 percent target, forcing the central bank to put the brakes on interest rate cuts that traders expect to begin in June. The futures market on Wednesday is forecasting three to four cuts this year — down from nearly seven just weeks ago — and the more cautious sentiment has helped drag the S&P 500 lower this week.