Markets are stuck in a 'doom loop' misreading Kevin Warsh on inflation: CIO

• Markets are caught in a 'doom loop' by misunderstanding the Fed's inflation target and policy.
• Caron believes the Fed is looking at 'trueflation' and trimmed mean CPI, which are already around 2%, not traditional core PCE year-over-year.
• High oil prices, tariffs, and supply issues are driving current inflation, which monetary policy (higher interest rates) cannot solve.
• Hiking rates into an oil-driven inflation shock is a policy mistake and amplifies an economic slowdown that is already underway.

Morgan Stanley's Jim Caron argues that markets are misinterpreting the Federal Reserve's (specifically Kevin Warsh's) inflation framework. He believes the Fed is looking at alternative, real-time, supply-side indicators that show inflation is already closer to the 2% target. Caron suggests that further interest rate hikes are unnecessary and a policy mistake, as current inflation is driven by supply shocks, not aggregate demand.