Summary

François Trahan’s presentation, The Great Inflation Comeback of 2025, argues that inflation is set to return, even without new tariffs. He critiques the Federal Reserve (Fed) for focusing too much on tariffs while missing broader economic forces, much like it underestimated labor shortages in 2021. Trahan analyzes past Fed tightening cycles, noting that most led to recessions. However, the current cycle is unique due to factors beyond fiscal stimulus. He identifies three key drivers: strong investment in reshoring efforts, consumption fueled by immigration, and the Fed’s failure to raise rates high enough to curb inflation. He highlights how private construction spending, particularly in manufacturing, has surged due to policies like the CHIPS Act. Immigration has also played an underappreciated role in GDP growth. He warns that the Fed’s recent “victory tour” over a soft landing is premature, predicting renewed inflation in 2024. Leading economic indicators, such as the ISM New Orders Index, suggest economic momentum is building. Rising earnings and tighter labor markets will likely reignite inflation, with wage pressures increasing. Trahan also discusses tariffs and potential deportation policies, which could worsen labor shortages and drive inflation higher. Globally, central bank rate cuts and rising commodity prices could further fuel inflation. He predicts the Fed will tighten policy again in 2024, pushing bond yields higher and restraining a housing recovery. For investors, Trahan recommends cyclical stocks, small caps, and companies with strong pricing power, while cautioning against rate-sensitive sectors like REITs and tech. He sees 2024 as a year dominated by inflationary forces and market volatility.

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