Damage ‘has already been done’ to the consumer psyche, portfolio manager says

Jerome Powell and the Federal Reserve have vowed to combat inflation levels not seen in…

Jerome Powell and the Federal Reserve have vowed to combat inflation levels not seen in decades, even if it means pursuing more aggressive rate hikes as the year goes on. In any case, Heritage Capital Founder and President Paul Schatz is hopeful that surging prices will slow throughout the remainder of 2022.

“The huge moves in inflation, the huge moves in energy, are ending moves. They’re not beginning moves,” Schatz told Yahoo Finance Live regarding elevated prices across various sectors. “So I think we get a reprieve in inflation — we get a reprieve in oil prices as the year goes on. But the damage to the consumer psyche has already been done.”

Schatz joined Yahoo Finance Live along with CAPTRUST Director of Investments Christian Ledoux to discuss inflation concerns and markets in light of the Fed’s interest rate hike schedule and volatile oil prices. Heritage Capital LLC is a Connecticut-based financial advisory and wealth management firm.

Schatz holds firm his belief inflation level peaks will be limited to the beginning of 2022 and thinks it is “possible” that the worst of oil price surges are now in the rearview mirror. Just a couple weeks ago, oil prices soared to almost $140 a barrel on Russia-Ukraine fears, all amid the backdrop of 7.9% inflation for the month of February. Other experts believe, however, that oil could reach as much as $150 a barrel from Russian retaliation.

‘It’s a front-loaded year’

Looking forward, the main headwind that Schatz believes investors are turning a blind eye to is slowing growth throughout the rest of the year. He also sees inflation and Fed action as posing significantly bigger risks to markets than the Russia-Ukraine war.

“It’s a front-loaded year. Earnings growth is going to slow. We’re going to see the best of the year now. And it’s going to slowly get worse and worse,” Schatz said.

And while slowing market growth may not necessarily be a guarantee for a looming recession, institutions have grown increasingly concerned in recent months about the road ahead. Goldman Sachs (GS) now estimates that there is a 35% chance that the U.S. will enter a full-on recession over the next year. Bank of America (BAC) also reported that investors are beginning to hoard cash on recession fears.

However, Ledoux noted that calming inflation later in 2022 may cause the Fed to become less aggressive in its policy-setting, allowing for growth in markets to pick up once again.

“And once you get into the late summer and early fall, I think we’re going to see those headline inflation numbers come down. And that may let the Fed take their foot off the gas a bit,” he said. “And maybe that gives a spark for a new rally.”

Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV

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