Inflation is likely to head lower in the months to come, says Ironsides Macro's Barry Knapp

Economic Indicators - The Consumer Price Index (CPI) number reported at 3% is considered benign from a market perspective, although it is above the Federal Reserve's target [2][6] - Government spending increased by 11% in the fiscal year ending September 2024, but has cooled to 3% in the fiscal year ending September 2025, correlating with a decrease in super core services inflation to 3% [4][6] Inflation Dynamics - The inflationary process has been significantly influenced by government spending, particularly the $1.9 trillion stimulus package in March 2021, which led to a rapid increase in goods prices [3][4] - Current inflation conditions differ from those in 2021, suggesting that inflation is likely to decrease in the coming months [7][8] Consumer Behavior - There is a noted decline in consumer spending on staples, with margins in the staples sector at their lowest since the sector's introduction, attributed to tariffs and weakening demand [5][6] - The tightening of fiscal policy and high monetary policy rates have created pressure on profit margins, particularly affecting small businesses and households living paycheck to paycheck [10][14] Federal Reserve Policy - The Federal Reserve's approach to tightening policy has disproportionately affected floating rate borrowers, including small businesses and households without assets [10][14] - A potential 100 basis points cut in rates could alleviate some pressure on small banks and businesses, improving profitability and easing financing costs [11][12]