Henry Allen, macro strategist at Deutsche Bank, warns that investors are significantly underestimating the monetary tightening needed to bring inflation back to 2 percent. PCE inflation, the Federal Reserve’s preferred gauge, stood at 3.7 percent as of June 2026, while markets are pricing in only about 31 basis points of rate hikes through December 2026. The US ISM services index shows prices rising at the fastest pace since the post-pandemic peak, indicating persistent services inflation. Deutsche Bank forecasts two 25-basis-point rate hikes in September and December 2026, bringing the federal funds target to approximately 4.1 percent, which Allen considers insufficient, as historical tightening cycles under comparable conditions required more than 100 basis points of hikes.
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