LIVE MARKETS-Wall Street veteran says oil-led inflation scare likely to fade like last year's tariff fears
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WALL STREET VETERAN SAYS OIL-LED INFLATION SCARE LIKELY TO FADE LIKE LAST YEAR'S TARIFF FEARS
For the second year in a row, for different reasons, the U.S. markets are again worrying primarily about inflation. However, retired strategist Jim Paulsen is noting that investors, the Federal Reserve, pundits, and the media spent all of last year fearing a potential significant rise in inflation due to Trump tariffs that never materialized.
Paulsen, an economist and seasoned Wall Street watcher who most recently worked as chief investment strategist at The Leuthold Group, now publishes his research and commentary on Substack.
"Here we are in 2026 and this time due to rising oil prices, it’s inflation déjà vu all over again. Nobody knows for sure how long and how serious the Iranian conflict will prove to be for inflation. And the conflict could unexpectedly worsen again at any time," writes Paulsen in his note.
He adds, "Short-term volatilities notwithstanding, my guess is this conflict is nearing a resolution."
Although he admits to having no special insight into how this conflict will ultimately conclude, his best guess is any inflationary fallout will again prove temporary, and current widespread caution will likely give way to renewed optimism surrounding both the stock market and policy accommodation.
Indeed, nobody knows which direction the Iranian conflict will take in the days, weeks, and perhaps months ahead, as recent negotiations may prove unsuccessful and military conflicts could intensify at any time, driving oil prices even higher.
However, as Paulsen sees it, the current rise in energy prices is fairly small compared to most oil-led inflationary bursts over the past 40 years. In addition, he says the pace of U.S. real GDP growth is currently significantly weaker than it was during previous oil spikes. And, finally, current U.S. real GDP growth is due solely to productivity gains – which he says is the most "disinflationary" type of economic growth.
"All of these characteristics suggest the inflationary fallout from the contemporary oil crisis may prove far less debilitating than widely feared. Perhaps this is why, despite WTI oil prices rising by about 60% from their low this year, the 10-year U.S. Treasury yield has only increased by 20 basis points since year-end," Paulsen writes.
(Terence Gabriel)
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