The biggest risk to the economy is a stagflationary scenario, says Stifel's Lindsey Piegza

Inflation Outlook - Stiffel expects a relatively benign Producer Price Index (PPI) report, with a slight increase of a couple of tenths of a percentage point, but notes that price pressures remain elevated above the 2% target [3] - A significant rise in both PPI and Consumer Price Index (CPI) could potentially cause the Federal Reserve (Fed) to pause before making a move in September [12] - The market is anticipating a 25 basis point rate cut by the Fed [13] Monetary Policy - The Fed is shifting its focus back to full employment due to cooling labor market data [4] - Elevated inflation levels will likely put a floor on any further potential rate adjustments beyond a near-term reduction [4] - The market is looking for the Fed to move towards or further into neutral [7] - An outsized 50 basis point move by the Fed is unlikely, but a dissent in favor of a larger cut may be seen [19] - More than two rate cuts this year may be overly aggressive, with potential cuts in September and possibly December [20] - Upside risk remains, as accelerating inflationary pressures could eliminate the Fed's ability to push through even a second rate cut [21] Economic Conditions - The economy is losing momentum and slowing down in some aspects, but not necessarily heading for an outright downturn [8] - The biggest risk is a stagflationary scenario, with the Fed tolerating above-target inflation, potentially leading to a stagnant economy with elevated price pressures [10] - The labor market data is not all pointing in the same direction, with a low unemployment rate near 4% but varying data points [15][16] - Consumption has been holding up relatively steady, with retail sales numbers around 4% [17]