The Inflation Outlook and Fed Policy under New Leadership

May’s CPI reading above 4% was a reminder that inflation is still elevated, but the broader trend may be turning lower as gasoline prices ease, shelter inflation cools, and tariff pressure potentially fades. Even so, the Fed’s preferred measures remain above target, so there is little case for near-term rate cuts and even less support for easing policy too soon.

For investors, the key message is that disinflation may continue unevenly rather than collapse quickly back to 2%. That argues for patience in rates markets and a focus on high-quality fixed income as an income and diversification tool, not a source of strong price gains.

The bigger risk is not just sticky inflation, but policy uncertainty around tariffs, energy supply, and fiscal deficits. If growth stays firm while long-term rates drift higher over time, bond yields may be shaped more by government borrowing than by central bank action.