Top Bank Strategist Warns of Pre-Crisis Economic Levels

Yoni Fanning, chief strategist at Mizrahi Tefahot Bank, has issued a warning regarding current economic conditions, drawing parallels to pre-crisis historical levels. He noted that recent US inflation data, including a 0.4% rise in the August Consumer Price Index (CPI) and a 0.3% increase in the Personal Consumption Expenditures (PCE) price index, align with expectations. However, core inflation remains at an annual rate of 3.0%, a figure that still leaves market expectations at around a 50% probability of a Federal Reserve interest rate hike in the upcoming month, potentially reaching an effective rate of 4.8% within a year.

Fanning pointed to rising oil prices in early September, which led to increased fuel costs, particularly for diesel, and anticipates a PCE inflation rate of 4.0% or higher next month. He also mentioned that reports of increased fuel tanker activity in the Strait of Hormuz have recently caused a significant drop in US oil prices, which is expected to have a moderating effect on inflation going forward.

In parallel, US private spending increased by a substantial 0.9% in August, while private income grew by only 0.2%. Despite a significant upward revision to the private savings rate, now at 4.1%, Fanning suggested this level is not extreme but also not far from it. He expects fuel prices to drive an increase in private consumption next month, impacting more basic consumption categories.

Furthermore, Fanning highlighted a tightening credit supply, contrasting with growing credit demand, partly driven by anticipated AI-related capital expenditures in the US, estimated at around $800 billion by 2026. This, coupled with rising real yields on short-term bonds, is creating difficulties for the American consumer, leading Fanning to conclude that the overall economic situation is reminiscent of historical pre-crisis levels.