Moderating Inflation Risks Resurgence Amidst Political Pressure and Sector Shifts - Episode Hero Image

Moderating Inflation Risks Resurgence Amidst Political Pressure and Sector Shifts

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TL;DR

  • Cooler December core CPI at 2.6% annually, below forecasts, suggests a favorable inflation environment, but risks of upside surprises persist into 2026 due to strong demand and fiat-based affordability solutions.
  • Global central bankers issued a rare joint statement backing Fed Chair Powell's independence, underscoring its critical role in preserving price, financial, and economic stability against political pressure.
  • JPMorgan Chase's 2026 guidance, exceeding net interest income expectations, indicates potential continued strength from trading activity, though softer consumer sentiment and mortgage prepayments pose risks.
  • KeyBanc's upgrade of Intel and AMD to overweight signals strong demand for server CPUs in 2026, driven by surging data center and AI requirements, with chipmakers largely sold out.
  • Cable operators face significant headwinds, with Wells Fargo predicting a loss of approximately 1 million residential broadband subscribers in the current year due to fixed wireless and fiber competition.
  • Denny's will go private following shareholder approval of a $620 million buyout, concluding a period of stock decline from its pre-pandemic high due to struggling traffic.

Deep Dive

December's core CPI report presented a favorable economic balance, indicating moderating inflation that supports continued growth, yet concurrently revealed underlying demand that risks reigniting price pressures by 2026. This delicate equilibrium is further complicated by political pressure on the Federal Reserve, juxtaposed with global central bankers publicly affirming the Fed's independence. As earnings season commences, early reports from financial institutions and technology firms signal mixed outlooks, with some forecasting robust performance driven by specific market segments while others face headwinds from evolving consumer behavior and competitive pressures.

The core Consumer Price Index (CPI) rose 0.2% month-over-month in December, a deceleration from previous expectations and a pace that aligns with November's trend. This moderation brought the annual core inflation rate to 2.6%, slightly below the projected 2.7%. While headline CPI met monthly forecasts with a 0.3% increase, the annual rate edged up to 2.7%, primarily driven by a 0.4% rise in shelter costs. This scenario is characterized as a "sweet spot" where fiscal stimulus bolsters economic activity while cooling wage growth aids inflation deceleration. However, sustained demand and a reliance on monetary policy rather than systemic affordability solutions create a risk of inflation exceeding targets by 2026. This economic backdrop has spurred renewed calls from former President Donald Trump for significant Federal Reserve rate cuts, a position that contrasts with market expectations of no cuts until after Fed Chair Jay Powell's term concludes in May. In response, a notable coalition of global central bank officials, including leaders from the ECB, BOE, BOC, and RBA, issued a joint statement endorsing Powell and the Fed's independence, underscoring its critical role in maintaining economic stability.

The commencement of the earnings season reveals distinct performance drivers across sectors. JPMorgan Chase's stock advanced following its release of 2026 guidance, which exceeded consensus on net interest income and projected expenses within expectations. This positive outlook is supported by anticipated continued strength in FX, fixed income, and rate hedging activities, although potential risks include softening consumer sentiment, accelerated mortgage prepayments, and diminished investment banking and brokerage fees. Conversely, Delta Airlines issued 2026 earnings per share guidance that fell slightly short of consensus, indicating potential pressures on its performance. In the technology sector, Intel and AMD saw gains after an analyst upgrade, driven by strong demand for server CPUs fueled by data center and AI growth, with the firms reportedly having sold out their 2026 inventory.

Beyond major corporate earnings, broader market trends are evident. Denny's is set to go private following shareholder approval of a $620 million buyout by TriArtisan Capital Advisors, marking a significant transition for the long-standing diner brand after decades of public trading and strategic shifts toward an asset-light, franchisor-heavy model. In the telecommunications sector, Wells Fargo issued a cautionary outlook for cable operators, initiating "sell" ratings for major players like Charter Communications and Comcast. This downgrade is predicated on the expectation that fixed wireless and fiber technologies will capture virtually all net broadband subscriber additions in the coming year, leading to an estimated loss of one million residential broadband subscribers for traditional cable providers this year.

The confluence of moderating, yet potentially resurgent, inflation, political pressure on monetary policy, and sector-specific earnings trends suggests a complex economic landscape. The critical takeaway is that while current data offers a temporary reprieve on inflation, underlying demand dynamics and external pressures necessitate a cautious approach, as the risk of renewed price acceleration and policy uncertainty persists into 2026.

Action Items

  • Audit inflation drivers: Analyze shelter costs and fiscal stimulus impact on upside inflation surprises (ref: TS Lombard analysis).
  • Measure central bank independence impact: Track 3-5 instances of political pressure on central banks and assess policy response.
  • Evaluate JPMorgan's 2026 outlook: Analyze net interest income and expense guidance against market risks (consumer sentiment, mortgage prepayments).
  • Analyze cable operator subscriber loss: Calculate projected residential broadband subscriber decline for 3-5 operators (ref: Wells Fargo research).

Related Episodes

Key Quotes

"Core consumer prices rose 0.2% on the month in December, cooler than the 0.3% consensus and matching November's pace. That left the core rate up 2.6% annually, just below the 2.7% forecast. Headline CPI rose 0.3% on the month and 2.7% year-on-year, in line with expectations on the month and a touch hot on the year, with shelter costs up 0.4%, the biggest driver."

This quote from the Wall Street Breakfast podcast details the December Consumer Price Index (CPI) report. The host, Kim Khan, highlights that core inflation came in slightly cooler than expected, which is a key indicator for the Federal Reserve. This data point is presented as a significant factor in the current market environment.

"TS Lombard Chief Economist Freya Bimmish says the macro backdrop is probably in a sweet spot for now, with fiscal stimulus supporting growth, while earlier wage cooling feeds through to inflation. But she warns that as demand stays strong and affordability is tackled by fiat rather than systemically through the Fed, the risk of upside inflation surprises rebuilds into 2026."

Freya Bimmish, Chief Economist at TS Lombard, offers an assessment of the current economic conditions. Bimmish suggests that while the present macro environment is favorable due to stimulus and cooling wage growth, she cautions about future inflation risks. This interpretation by Bimmish points to potential challenges in 2026 if demand remains robust and inflation is not addressed structurally.

"In a rare coordinated move, global central bank officials issued a statement backing Powell and the Fed's independence. Signatories included Christine Lagarde, ECB; Andrew Bailey, BOE; Tish Maclin, BOC; and Michelle Bullock, RBA. They all called central bank independence a cornerstone of price, financial, and economic stability that must be preserved."

This passage describes a notable action taken by international central bank leaders. The host, Kim Khan, reports that officials from the ECB, BOE, BOC, and RBA issued a joint statement supporting Fed Chair Powell and the Federal Reserve's autonomy. This collective endorsement underscores the importance placed on central bank independence for maintaining economic stability.

"Steve Bujan of Pearl Gray Equity and Research notes that strong trading activity in FX, fixed income, and rate hedging could continue into 2026, but softer consumer sentiment, faster mortgage prepayments, and weaker IBD fees remain risks."

Steve Bujan of Pearl Gray Equity and Research provides an analysis of JPMorgan Chase's outlook. Bujan identifies potential drivers for continued strong trading activity, such as FX and fixed income markets, extending into 2026. However, Bujan also points out significant risks, including a decline in consumer sentiment and changes in mortgage prepayment behavior.

"Wells Fargo issued a stark warning for cable operators, slapping sell ratings across the board. Analysts put Charter Communications, Comcast, Altice's Optimum, and Cable One to underweight. They now expect the group to lose about 1 million residential broadband subscribers this year as fixed wireless and fiber scoop up essentially 100% of net broadband adds."

This quote details a negative outlook from Wells Fargo analysts regarding the cable industry. The host, Kim Khan, reports that Wells Fargo has initiated sell ratings on major cable companies, predicting substantial subscriber losses. The analysts attribute this forecast to the increasing market share of fixed wireless and fiber internet services.

Resources

External Resources

Articles & Papers

  • "CPI hits a sweet spot as earnings kick off" (Seeking Alpha) - Mentioned as the episode title and topic.
  • "Quant News and Analysis" (Seeking Alpha) - Mentioned as a subscription offering.

People

  • Kim Khan - Host of Wall Street Lunch.
  • Freya Bimmish - Chief Economist at TS Lombard.
  • Donald Trump - Mentioned for pressuring the Fed Chair.
  • Jay Powell - Fed Chair.
  • Christine Lagarde - Mentioned as signatory backing the Fed's independence.
  • Andrew Bailey - Mentioned as signatory backing the Fed's independence.
  • Tish Maclin - Mentioned as signatory backing the Fed's independence.
  • Michelle Bullock - Mentioned as signatory backing the Fed's independence.
  • Steve Bujan - Mentioned as from Pearl Gray Equity and Research.

Organizations & Institutions

  • TS Lombard - Mentioned for its Chief Economist.
  • Federal Reserve (Fed) - Mentioned in relation to interest rate policy and independence.
  • FOMC (Federal Open Market Committee) - Mentioned in relation to interest rate decisions.
  • ECB (European Central Bank) - Mentioned as a signatory backing the Fed's independence.
  • BOE (Bank of England) - Mentioned as a signatory backing the Fed's independence.
  • BOC (Bank of Canada) - Mentioned as a signatory backing the Fed's independence.
  • RBA (Reserve Bank of Australia) - Mentioned as a signatory backing the Fed's independence.
  • JPMorgan Chase - Mentioned for issuing guidance and outlook.
  • Pearl Gray Equity and Research - Mentioned in relation to analysis of JPMorgan Chase.
  • Delta Airlines - Mentioned for guiding EPS.
  • Intel - Mentioned for gaining after an upgrade.
  • AMD - Mentioned for gaining after an upgrade.
  • Denny's - Mentioned for its buyout by private equity and historical context.
  • TriArtisan Capital Advisors - Mentioned as the private equity firm buying Denny's.
  • TGI Friday's - Mentioned as an owner of TriArtisan Capital Advisors.
  • PF Chang's - Mentioned as an owner of TriArtisan Capital Advisors.
  • Treville Capital - Mentioned as part of the buyout group for Denny's.
  • Yadda Enterprises - Mentioned as part of the buyout group for Denny's.
  • Nasdaq - Mentioned as the exchange where Denny's traded.
  • Wells Fargo - Mentioned for issuing a warning to cable operators.
  • Charter Communications - Mentioned as a cable operator receiving a sell rating.
  • Comcast - Mentioned as a cable operator receiving a sell rating.
  • Altice's Optimum - Mentioned as a cable operator receiving a sell rating.
  • Cable One - Mentioned as a cable operator receiving a sell rating.

Websites & Online Resources

  • Seeking Alpha - Mentioned as the source of the podcast and transcripts.

Other Resources

  • CPI (Consumer Price Index) - Mentioned as a key economic indicator.
  • Core consumer prices - Mentioned in relation to CPI data.
  • Headline CPI - Mentioned in relation to CPI data.
  • Shelter costs - Mentioned as a driver of CPI.
  • Fiscal stimulus - Mentioned as supporting growth.
  • Wage cooling - Mentioned as feeding through to inflation.
  • Fiat - Mentioned in relation to affordability.
  • Net interest income - Mentioned in relation to JPMorgan Chase's outlook.
  • FX (Foreign Exchange) - Mentioned in relation to trading activity.
  • Fixed income - Mentioned in relation to trading activity.
  • Rate hedging - Mentioned in relation to trading activity.
  • EPS (Earnings Per Share) - Mentioned in relation to Delta Airlines' guidance.
  • Server CPUs (Central Processing Units) - Mentioned in relation to chipmaker demand.
  • Data center demand - Mentioned as a driver for chipmakers.
  • AI (Artificial Intelligence) demand - Mentioned as a driver for chipmakers.
  • Coffee shop model - Mentioned as Denny's original format.
  • 24-hour diner model - Mentioned as Denny's shift in format.
  • Franchising - Mentioned as a strategy for Denny's expansion.
  • Asset-light strategy - Mentioned as a management push for Denny's.
  • Refranchising locations - Mentioned as part of Denny's strategy.
  • Cash-generative, franchisor-heavy diner brand - Mentioned as how Denny's stock was pitched.
  • Residential broadband subscribers - Mentioned in relation to cable operator losses.
  • Fixed wireless - Mentioned as a competitor to cable broadband.
  • Fiber - Mentioned as a competitor to cable broadband.

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