Europe's deflation picture 'more clear' than US: Strategist

As global dealmaking activity picks up in 2024, companies are focusing on the Federal Reserve's interest rate strategy to determine whether it is a good backdrop for the M&A environment.

Infrastructure Capital Advisors CEO Jay Hatfield joins Yahoo Finance Live to talk about his inflation outlook across global central banks' rate playbooks going forward this year.

"The eurozone doesn't have any strange ways of calculating inflation. They just have much more straightforward methodology, they don't have this strange financial services element and their inflation is going to go sub-2 almost certainly," Hatfield explains. "They're rolling out these gigantic numbers, don't have distortions, they're entering into a pretty significant contraction — so that is deflationary."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

- And do you think that there are positive implications for the market overall, that there's this level of confidence and not just that these are going to be good investments, but also that there is going to be a level of stability perhaps in rates this year, or predictability. Or are these defensive moves because of the lack of predictability?

JAY HATFIELD: Well, I think in terms of corporations they're satisfied with no more hikes. They can operate into this environment, particularly in the US, because we have a very strong economy. And there's really little debate as to whether we'll have cuts. And I don't think to major, it might matter to me and stock traders, where we have four cuts, or three cuts, or two cuts, but they're comfortable that there's going to be global cuts, we're much more confident about Europe we're predicting June for Europe, so we think that's a perfect environment for corporations to raise capital and also pursue their consolidation objectives.

- And Jay, let's stick with the Fed and their rate hiking cycle here, Jay. Interested to get your take. Inflation may be cooling, Jay, but maybe it's just it's slower than a lot of investors expected. When do you expect the Fed to start cutting, Jay? Is it June or is it later in the back half of the year, and how does that timeline impact and influence how you want to put money to work?

JAY HATFIELD: Thanks, Josh. Well, we're quite bearish about the Fed rate cuts. We're projecting August, which I haven't heard, and we are short in our hedge funds short, Fed fund futures up until August. So we have a bet on that as well. [COUGHS] But the reason for that is not because we believe inflation's accelerating, but unfortunately in the US we have a lot of very strange methods for estimating inflation. Everybody knows about the archaic shelter calculation.

What they haven't focused on is, we have a annualized 30% increase in financial services inflation, which from my perspective, I wish that were true. But the only, we didn't raise our rates, but what happens is when the stock market rallies that gets counted as inflation. So we think that PCE is going to print at 0.5. In other words, not roll down at all. So not go down year over year. We think the Fed needs to get to 2.5. That could take this six months.

So based on that, you should just sell the market, as you were indicating there's a lot of risk out there. But I already mentioned it, but the Eurozone doesn't have any strange ways of calculating inflation. They just, they have much more straightforward methodology. They don't have this strange financial services element. And their inflation is going to go sub two almost certainly.

They're rolling out these gigantic numbers, don't have distortions. They're entering into a pretty significant contraction. So that is deflationary. So their picture is more clear, and that's why we wouldn't overfade the rally right now. I mean, we're cautious, but we wouldn't just sell everything because we think that we will get the summer rally.