Rising oil prices = Inflation heating up? JP Morgan: Just a temporary "illusion", the earliest Fed rate cut in April!

Jefferies chief US economist Thomas Simons said that once the temporary oil price shock subsides, the trend of cooling inflation in the United States will continue. He believes that although energy costs may lead to overall inflation spikes, the overall cooling trend remains unchanged because consumers have limited purchasing power - making energy-driven inflation essentially a "zero-sum game". "Ultimately, this is basically a zero-sum game," he said in a recent interview. Simons further explained that when consumers pay more for gasoline and energy, the funds available for other purposes will be reduced, thus preventing price hikes from spreading widely in the economy. This dynamic helps explain why even if overall inflation data rises, core inflation indicators may remain relatively stable. He also discussed the increasing divergence between the Consumer Price Index and the Personal Consumption Expenditures Price Index (the Fed's preferred inflation gauge). Simons pointed out that companies facing profit pressure from tariffs and wage costs often pass on these cost increases to "products or services with high profit margins, typically sold to consumers who are less sensitive to price" - the high-income population, while keeping basic goods prices stable for low-income consumers. The economist emphasized that compared to global central banks such as the European Central Bank and the Bank of England, the Fed has unique flexibility, with the former focusing solely on price stability. The Fed has a dual mandate to support price stability and employment, and given the US reliance on gasoline for commuting and goods transportation, the Fed will consider "significant risks to economic growth if energy prices remain high". Therefore, Simons disagrees with the current market expectations of delaying the first rate cut until September. He believes that the Fed may act earlier and states that a rate cut could come "as early as April, but definitely by June". He also expects multiple rate cuts throughout the year, noting that the likelihood of three rate cuts is greater than one. Simons' analysis leads to a broader conclusion that as long as energy price pressures do not affect core inflation indicators, the Fed can "overlook" fluctuations in overall inflation. "Although there may be short-term fluctuations in the oil market, the potential trend of cooling inflation in the economy seems to continue," he emphasized. This article is reprinted from Caixin, GMTEight editor: Chen Wenfang.