Charts of the Week: Faith in the Fed, Faith in Fiber

Consumer confidence and equity markets This first chart starkly illustrates a growing disconnect between equity market valuations and underlying economic sentiment. While the S&P 500 has surged to new highs—fuelled in large part by investor enthusiasm for the transformative potential of Artificial Intelligence—the Conference Board’s measure of US consumer confidence has remained unusually subdued. The gap suggests that Wall Street may be pricing in a productivity renaissance that households and consumers have yet to feel in their day-to-day economic realities.

Oil prices and inflation expectations A further prop to risk appetite is the re-emergence of a perceived “Fed put”: investors are betting that prospective Fed easing will cushion growth and keep the expansion alive. The chart, however, flags a complication. Five-year forward inflation expectations have not fallen in line with oil prices, hinting at a decoupling just as the policy path becomes dangerously politicised. Part of the stickiness in expectations likely reflects tariff-related price risks in recent months. If inflation expectations stay firm while oil softens—and politics intrudes on rate-setting—the market’s faith in a smooth, supportive Fed glide-path may prove a shakier foundation than it now appears.

US profitability Ultimately, valuations will live or die by profits. The chart, from the latest Blue Chip Economic Indicators survey, shows US economists steadily marking down their 2025 national‐accounts profit growth forecasts through the first half of this year—consensus sliding from ~3–4% toward ~1% by early summer—before a modest late-summer uptick back toward ~2%. The top-10 forecasters remain more upbeat (~4%+), but the bottom-10 still see outright declines (-1% to -2%), underscoring a wide dispersion of views. If the consensus fails to re-accelerate—and particularly if the bottom tail proves closer to reality—today’s multiple expansion looks vulnerable. A sustained turn higher in these forecasts would help justify equity pricing; until then, profit expectations bear close watching.

The Fed and Asia’s policy rates With equities potentially leaning on lower discount rates and a perceived policy backstop, the global policy backdrop has admittedly moved in support: the Fed delivered its first 25bp cut of this year this week. In Asia, easing was already underway, with several central banks cutting despite a wider US–Asia rate gap to shore up soft domestic demand and cushion tariff-related trade risks—helped by contained headline CPI in the absence of fresh supply shocks. Further incremental cuts across the region remain plausible, with Japan the notable outlier maintaining a tightening bias. The caveat, as noted above, is that the Fed path is arguably becoming more politicised and tariff pass-through could keep inflation expectations sticky—both limiting how far the easing cycle can run and, by extension, how much policy can underwrite elevated valuations.

Global food prices Turning to the broader inflation pulse, the commodity tape is doing some of the Fed’s work. The CRB foodstuffs index has rolled over in recent months, trailing the broader CRB basket and signalling softer food-price pressures ahead. Better harvest outcomes and improved supply chains are a big part of the story: higher wheat and coarse-grain yields across key producers (US Plains, Black Sea, parts of Latin America), steadier fertilizer availability and prices versus the 2022 spike, and fewer logistics bottlenecks have lifted exportable supply and eased basis pressures. That should filter into headline CPI with a lag, even if tariffs generate upward pressure in coming weeks. The caveat here is familiar: weather swings and geopolitics can flip this narrative quickly—but for now, the direction of travel in food commodities leans disinflationary.

UK inflation Food disinflation ought to help the headline picture in coming months, but the UK’s core pressure point is still services—and that’s mostly about wages. This week’s releases signalled an ebbing labour market and a further nudge down in private sector pay growth. Yet pay is still running at levels inconsistent with a 2% inflation target, and the tight link between pay and services CPI shows why services inflation has ticked the wrong way again (see chart below). That persistence leaves the BoE’s easing path highly conditional: cuts are still possible, but only if wage momentum cools more decisively and the services print follows suit.