Here’s what inflation might look like in 2022

President Biden has made the “anti-inflation choice” by picking Jerome Powell to lead the U.S. Federal Reserve for another term, said Saxo Bank’s Althea Spinozzi in her interview with CNBC this morning.

Spinozzi’s remarks on CNBC’s ‘Street Signs Europe’

On “Street Signs Europe”, Spinozzi said inflation will come down a little next year but will still remain significantly above normal levels.

Inflation is going to correct next year but is going to remain much higher than what we are accustomed to. That’s going to require some tightening from the U.S. Federal Reserve.

If Biden would’ve picked Brainard to chair the Fed, she added, interest rates might have been left untouched for longer, which could have “increased inflation expectations”. Earlier this month, Osterweis Capital Management’s Larry Cordisco listed a few stocks he said could outpace inflation.

Spinozzi blames debt ceiling crisis for low yields

According to Spinozzi, what’s more concerning, at the moment, is that the 10-year yield is keeping well under 2.0%. She expects the bond market to make a comeback once the debt ceiling crisis is over.

We believe that 10-year yield will need to rise comfortably above 2.0%. We had the 2.0% target for this year, but with the debt ceiling crisis, that has been postponed. It’s likely that in Q1 of 2022, if we continue to see interest rate hikes accelerating, the 2-year yield will be tested.

She finds it likely that risky assets like “equities” will lose pace once the treasury yields are on the rise. The three major Wall Street indices are all currently trading a little below the recent record levels.