Juliette Declercq: The Consensus on US Inflation Is Completely Wrong

Episode Overview

• This episode features macro strategist Juliette Declercq, founder of JDI Research, discussing the persistent nature of global inflation and its impact on central bank policies.
• Declercq maps out the complex web of inflationary pressures, moving beyond simple oil shocks to analyze shipping costs, semiconductor demand, labor market resilience, and the economic footprint of the AI boom.
• This conversation is highly relevant for fixed-income investors, macro traders, and anyone seeking to understand why the Federal Reserve's path to lowering interest rates remains highly contested.

Key Concepts

• Sticky Core Inflation and the "Super Core": While headline inflation fluctuates with volatile energy prices, "super core" inflation (core PCE excluding housing) remains stubbornly high, running above 4% on a six-month basis. This persistent underlying inflation prevents central banks from initiating a sustained rate-cutting cycle, as structural demand pressures remain unaddressed.
• The Dual Inflationary Nature of AI: While artificial intelligence promises long-term disinflation through productivity gains, its immediate macroeconomic impact is highly inflationary. The massive capital expenditure required for specialized microchips, data centers, and energy infrastructure—combined with the wealth effect from soaring tech stocks—directly stimulates demand and keeps input costs high.
• Geopolitical Aftershocks and Input Costs: Supply-side inflation is no longer a simple story of crude oil pricing. Ongoing geopolitical tensions in transit choke points like the Red Sea continue to elevate shipping freight costs, while the prices of ubiquitous intermediate goods—such as plastics and microchips used in everyday consumer products—remain elevated, creating rolling inflationary waves.
• Fed Credibility and Labor Market Strength: The Federal Reserve's hawkish posture is sustained by a remarkably resilient labor market, which deprives dovish policymakers of an excuse to cut rates. To maintain its inflation-fighting credibility, the Fed must react to these persistent domestic demand signals rather than relying on optimistic projections of falling prices.

Quotes

• At 1:45 - "What I'm looking at in the next couple of months is actually core inflation not exploding but staying very sticky... we're basically running above 4% on a six-month basis." - explaining the persistent nature of underlying inflation metrics that continue to complicate the Federal Reserve's path.
• At 7:15 - "That's a ton of inflation still in the pipeline... when you're not even talking about the labor market stabilizing yet, but also obviously about those gigantic earnings we've seen in AI companies still basically pushing stocks higher, which gives wealth gains." - illustrating how strong corporate earnings and stock market wealth effects continue to fuel demand-driven inflation.
• At 12:05 - "I still think eventually AI will become heavily disinflationary, but at the moment, the fact is AI is super inflationary." - clarifying the distinction between the long-term productivity promises of AI and its immediate capital-intensive, inflationary impact on the current economy.

Takeaways

• Position portfolio allocations defensively by shorting the long end of the US Treasury curve (such as the 10-year yield) to hedge against the high probability of sticky inflation forcing yields upward.
• Avoid using headline oil price declines as a sole indicator of cooling inflation; instead, monitor secondary supply metrics like global freight rates, plastic resins, and commercial semiconductor pricing to gauge true supply-chain pressures.
• Use payroll and labor market data as the primary signal for Federal Reserve policy direction; if labor markets do not show clear signs of softening, expect the Fed to hold rates higher for longer or execute additional rate hikes.