Market Pulse: Navigating Inflation Risks – What to Watch For

Recent inflation reports have been stronger than expected, reminding us that returning to more normalized inflation levels is still challenging. This could result in interest rates staying higher for a longer period.

The chart below shows an increase in inflation that started in mid/late 2024 and continues to rise into 2025.

While we expect prices to eventually decrease to more manageable levels, it’s important to recognize that the current economic environment is complex, and there are risks that could keep inflation rising.

One factor to watch is the impact of immigration on the labor market. In recent years, immigration has contributed significantly to population growth in the U.S., especially as birth rates have declined. Immigrants now make up a large part of the workforce.

With the unemployment rate at 4% and the economy still growing, any major changes to immigration policies could put pressure on the already tight labor market, potentially driving prices higher.

In a previous Market Pulse (linked here), we discussed how escalating tariffs could disrupt the recovery from inflation. Although no significant changes have occurred yet, this risk remains, especially with the new administration just six weeks into office.

While the general trend suggests prices will continue to normalize, it’s important to stay aware of the risks that could derail this progress. Recent inflation reports and ongoing policy uncertainty remind us that the inflation story may not be completely over.

In summary, while there are signs that inflation may eventually ease, the path to normalization is far from straightforward. A variety of factors, including labor market pressures and ongoing policy uncertainty, could keep inflation elevated for longer than expected. As always, it’s important to stay vigilant and prepared for the evolving economic conditions that could impact inflation trends moving forward.

At Highland, we’ve already taken steps to hedge against inflation yet balance the uncertain trajectory ahead through Treasury Inflation Protected Securities (TIPS). Our Wealth Confidants are here to guide you through these opportunities and challenges, offering experienced insights and tailored strategies to help safeguard your financial future. Reach out today to begin the conversation at wealthconfidant@highlandprivate.com.