Morgan Stanley on their inflation outlook, a huge shift lower according to their forecast.

  • US CPI is currently 7.7%Y, but we forecast it to be under 2.0%Y by the end of next year.

MS cite 5 reasons that'll cool inflation:

  • Global demand should be weaker;

    Supply chains are showing much less stress;

    Inventories look increasingly elevated, inviting discounting for core goods;

    Risk in shelter prices is much more balanced; and

    Base effects shift materially (US gas prices are up 11%Y, but will be down 11%Y by March at current prices)

MS' Fed projection:

  • we think that the Fed pauses after a January rate hike at 4.625%

And, the European Central Bank:

  • ECB pauses in March at 2.50%
Morgan Stanley