Yung Lim, CEO and Fixed Income Strategist at FolioBeyond, joined Closing Bell to discuss the May CPI report, as inflation is still red-hot going into a key decision from the Federal Reserve about interest rates.

Closing Bell

CPI Report Reveals U.S. Inflation Still Rising Rapidly

but the may consumer price index showing inflation hasn't peaked, in fact still rising at a very quick clip. And americans feeling the pain everywhere from the gas station to the grocery store. And of course to their summer travel plans. This data flaring up fears of a possible recession here in the US. And joining me now is young limbs ceo and fixed income strategist at folio beyond it's an investment strategies platform. Young. Thanks for coming on the show. What's your reaction to the C. P. I. Report that we got this morning? Yeah. As you said, chris the numbers are bad across the board. Uh you know, from a macro perspective, we have been anticipating a continued spike in the inflation rate. So it's not as surprising to us, but you know, both the headline and core CPI I numbers are stubbornly high. Uh The numbers are bad across the board service sector inflation remains high housing market as limited inventory and that's also driving up rents. So, and then you add on the macro factors um, you know, including the issues related to food supplies and energy and of course the intermittent covid lockdowns in china that all doesn't help. So all of this makes it more challenging for the Fed, I guess as of this morning, there were higher chances in terms of pricing of a 75 basis point increase at some point in the near term, it's not over 50%, but the probability has increased and you know, the Fed obviously needs to maintain the momentum and the pace of tightening here. Right? So I think now all eyes are young, clearly turning to the Fed decision next week. We all anticipate rates will rise by half of a percentage point as has been broadcast since the last meeting. But I think any sort of direction for the market going forward might come in that press conference that we get from Fed chair jerome Powell. Is it your expectation that the Fed is not gonna pause on rate rises come september after half of a percentage point games in june and july as has been broadcast, but instead need to act even more aggressively to try to get these soaring prices in check. Yes. You know, we we believe that they're going to continue with the pace of hikes there. As I said, there is a chance that the hikes will be in greater increments down the road. If if these inflationary numbers persist, we'll have to see how things play out. But uh, the Fed has been behind the curve. You know, they sort of Continue to stay a little bit behind the curve by limiting any increases to 50 basis points. And, you know, we're obviously in a very unusual environment with, with the price, uh, pricing pressures, high labor-market wage inflationary pressures. So we think it's not an easy problem to resolve and, you know, we'll have to continue to do his thing and maybe increase the pace of increases. And then you have the downsizing of the balancing right, of course, and that's going to be underway here very soon expectations that could be a negative force for the stock market. So our retesting our lows today certainly that we had seen in the month of May, an extremely volatile month, a lot of selling even though the down the S. And P. Eked out a tiny little game For the month of May with a big rally at the end of that month. But here the monthly increases, we were showing them on camera. I want to run through them for our viewers. Again, consumer prices of 8.6 in May collectively from the same time a year ago. These are just simply the month over month increases in May. How prices rose from april of this year will fuel as gas prices set new records of 17% airfare up 13% its third straight month in a row of double digit gains just on a month over month basis, shelter at 5.5% energy up about 4% in food Up about 1%. So it is the basic necessities. Unfortunately. A young where we're seeing price gains here. Do you think this does lead to a recession or can the Fed somehow get that soft landing? Yeah. I I think there's still a possibility that they engineer a soft landing. Uh And even if it's a minor recession, I guess that that would be counted as a minor success. So it's still too early to tell uh you know, you know the positives are, you know you have underlying strengthen the economy from the pent up demand post pandemic. You have a lot of savings and consumers are still willing to spend money, you know with with their savings and credit cards. So there are some tailwinds that that should continue to help as well as the strong employment numbers. So I don't think we're going to a major recession. I mean there's certainly a potential for stacked inflationary environment inflation plus slow growth or negative growth, but I don't think this stack inflationary environment will be accompanied by very high unemployment because the underlying uh drivers of employment are still there. Yeah. Even though we are starting to see some companies, especially in the richly valued technology names actually start to lay off workers in some cases or implement some of these hiring freezes, meta netflix being two examples there. Um we did hear young from President biden at the Port of Los Angeles earlier this hour trying to tout the efforts that his administration is doing to keep this economy in a recovery phase. What is the role of the biden administration. And have they made missteps here that have gotten us to this place? Well, I don't think the government with their fiscal policies can do a tremendous amount to uh steer the economy in a different direction is really the Fed's role and they have a lot of leverage they can pull. So it's really the monetary policy that's gonna dictate how we come out of this at the end of the day. But but there are uh things that the government can do in including, I guess their attempt to reduce tariffs from china, any kind of free free trade uh type of measures should help uh you know, productivity and overall growth and also limit inflationary pressures. But I think those are beneficial on the margin. I guess taking a step back and thinking about all the protectionist moves that are going on globally anytime you have, you know, trade flows declining, and um you know, these global supply chain networks breaking down, I think that's also inflationary in the near term. So, you know, that's the other trend that we we we sort of have to address, which I guess the government to some degree, can try to control. All right, we're gonna leave it there a young lim, he's a ceo and fixed income strategist at folio. Beyond a young, thanks so much for coming on the show today and talking about this very important report