The inflation shock is over so there's no need for any more Fed rate hikes the Institute of International Finance's chief economist says

Americans' spending spree hasn't been reflected in the stock market in 2023 so far.

Jeff Greenberg / Getty

• "The US inflation shock is over", so the Fed need not hike interest rates any more, according to the chief economist of the Institute of International Finance.
• The IIF's measure of "inflation generalization" has fallen to the lowest level since February 2021, Robin Brooks said. 
• US inflation has been steadily cooling from its mid-2022's highs, coming in at 4.0% in May on an annual basis. 

The US inflation shock is over, according to one economist. 

Robin Brooks, chief economist at the Institute of International Finance, said the association's measure of "inflation generalization" fell last month to the lowest level since February 2021 - when US consumer-price increases started accelerating due to supply-chain disruptions caused by COVID-19. 

"The US inflation shock is over. Our measure of inflation generalization in the CPI - the combined weight of items with m/m (saar) inflation > 2% - is in May 2023 down to its lowest level since February 2021, which is when all the inflation craziness began," Brooks said in a tweet on Tuesday. 

"No more Fed hikes!!!" he added. 

Investors are bracing for the Federal Reserve's monetary policy decision due Wednesday, with market expectations leaning toward a pause in interest-rate hikes. That outlook is based on the steady decline in inflation since mid-2022, as well as economic risks raised by the recent banking turmoil.

The annual inflation rate fell to 4% in May from last year's peak of 9.1%. That's thanks to the Fed's aggressive policy tightening over the past year, which saw benchmark interest rates rise by 500 basis points since early 2022. 

While Brooks suggests the threat of inflation has faded, other market commentators have raised concerns inflation is sticky and can lead to stagflation. Goldman Sachs' chief operating officer built on such worries recently, saying stubborn price pressures could ultimately eat away at US economic growth.

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