May 20, 2026
Wall Street and Washington appear to be, once again, out of sync.
Morgan Stanley, last week, sent up a red flag to investors that inflation was likely going to be much worse (1) over the next few months, with the normal summer surge, the war in Iran and a lag in housing inflation measures putting pressure on prices.
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At the same time, though, Treasury Secretary Scott Bessent said he expects price pressures to ease soon and expects we'll then see a period of "substantial disinflation" (2).
It is, of course, not uncommon for Wall Street analysts to have a viewpoint that's entirely different from the current administration. Analysts are responsible for helping people make more money. Administrations always want to find a positive spin on the economy to help boost approval ratings and enhance re-election chances.
But this is a rare case of where both sides could be telling the truth, even if those viewpoints seem to conflict.
It's all about the peak
The central issue Bessent and Morgan Stanley converge on is when we'll hit peak inflation. Morgan Stanley says it will occur in May or June. That's because of three key factors: tariffs, which haven't fully been factored into core prices yet; continuing energy price spikes, due to the war in Iran; and inflation from the housing market, which we're still getting a handle on thanks to the federal shutdown last fall.
"You still have kind of a — what I call a trifecta here," Michael Gapen, the bank's chief US economist told reporters, adding that he believes the US is currently experiencing "peak pressures" when it comes to inflation.
Bessent, speaking with CNBC, agreed that the market is likely to see one or two more “hot inflation numbers," but then, he said, "I think we’re going to see substantial disinflation."
The U.S. will continue to pump oil to ease supply issues from the Iran war, Bessent said, which he sees as the primary problem. Before the military action, he notes, core inflation was coming down and he expects it will again. (The Consumer Price Index, it's worth pointing out, has been increasing steadily since January.)
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The Fed question
Kevin Warsh has taken over as Chairman of the Federal Reserve, replacing Jerome Powell, and many market observers believe he will be much more open to Donald Trump's forceful calls to reduce interest rates.
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The hurdle, however, is he can't do that on his own — and the Fed's Board of Governors indicated at the last meeting that they're disinclined to do so.
Morgan Stanley says that the trifecta of issues it listed would likely prevent the Federal Reserve from cutting interest rates for quite some time, likely for the entirety of 2026.
That tracks with other forecasts. Morningstar, in a recent report, wrote: "We agree that a cut in 2026 is highly unlikely. We don't expect rate cuts to resume until 2027" (3).
Bessent didn't offer an estimate on when he thinks the Fed might cut rates, but did say he felt this period of inflation was different from the one we saw in 2020-2021, which is when the Powell Fed came under fire for tightening policy too late to prevent inflation from soaring.
"We'll get to the other side of this, and I don't know whether it's a few days or a few weeks, and energy inflation will come back down," he Bessent.
Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
Business Insider (1); CNBC (2); Morningstar (4)
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Chris Morris is a veteran journalist with more than 35 years of experience at many of the internet's biggest news outlets. In addition to his activities as a writer, reporter and editor, Chris is also a frequent panel moderator and speaker at major conferences, including CES and South by Southwest.
