A "Big Surprise" Coming the Fed's Way? | With David Rosenberg

Rosenberg says productivity is generating 90% of economic growth, but attributes current productivity gains to pandemic-era digitization rather than AI; he says it is too early to see AI benefits in the data. At the same time, investment growth is concentrated in AI, with AI capital expenditures up 16% and data-center construction up 60% year over year, while non-tech capital expenditures were negative.

Rosenberg argues that underlying disinflation remains strong: his firm's analysis found headline and core inflation would be below 2% without recurring shocks, and he says productivity undermines the case for supply-driven inflation. He also says tariffs and current diesel and food pressures have not fed into wages, with core goods inflation at 0.7%.

Rosenberg points to rents that are deflating, new-home prices down about 8% year over year, and heavy builder discounting as signs of shelter disinflation that has not yet flowed through official statistics. Because shelter carries substantial weight in the PCE deflator and even more in the CPI, he expects that disinflation to outweigh the more statistical inflationary impulse from the energy shock.

Rosenberg warns that the bond market is pricing roughly three rate hikes that the Fed is not calling for, and argues that tightening in response to a supply shock has a poor historical record. He says the yield curve's prior recession signal was temporarily obscured by fiscal stimulus and sees a risk of a Fed policy mistake, while stressing that the outcome remains uncertain.