Inflation expectations are collapsing and the Fed may be only reading 'half of the story,' Credit Suisse chief stock strategist says

The Fed may be at risk of overtightening the economy by only reading half of the story because market expectations for inflation are dropping rapidly.

Inflation expectations are collapsing on where inflation will be a year or 18 months from now, according to Golub.

The one-year breakeven inflation rate, a measure of inflation expectations a year from now, predicted sub- 2% inflation in 2023.

Falling energy prices are likely to be the reason for that. Henry Hub Natural Gas settled at $8.03 per million British Thermal units on Friday, down from a previous high of $9.68 this summer.

The Fed will be slow to let up on the brakes, which could cause the economy to go into a recession if inflation continues to fall, said Golub. Powell stated this week that the central bank would continue to hike rates until the job is done, and that leads him to believe that the Fed will blink.

If inflation is going in the right direction, the Fed should not drive us into a recession. Golub made a statement.

Although there were two recession indicators flashing in the economy, Golub believed the Fed was only looking at half the story.

The large amount of job openings was keeping the unemployment rate stable. A downturn usually doesn't occur until at least 11 months after an inverted yield curve.

It's possible that long-term hawkishness isn't necessary and the Fed's insistence on tightening the economy could lead to a longer period of contraction.

"We may have a recession, but it may be a year from now, 18 months from now, and being early on calling a recession is not right," Golub said.