Top economist David Rosenberg says inflation will come down hard no matter what the Fed does - so more hikes would be a mistake

• David Rosenberg believes US inflation will come down hard regardless of the Federal Reserve's next move. 
• That means it would be a mistake for the Fed to keep hiking interest rates, the veteran economist said.
• Once cooling rental prices shows up in official data, inflation will drop more than expected, he said.

Inflation is going to shoot lower in the US no matter what the Federal Reserve decides to do next on monetary policy, according to top economist David Rosenberg. 

That means the US central bank would be wrong to make any more interest rate hikes, the Rosenberg Research founder said in a CNBC interview Tuesday. 

"I think it's a mistake because inflation is going to come down quite hard in the next 12 months, irrespective of what the Fed does in early May. But they're obviously not going to take any chances," he said. 

The Fed has raised benchmark interest rates to upwards of 4.75% from almost zero 12 months ago, the steepest jump in US borrowing costs since the 1980s. It has moved aggressively to try to quash surging inflation, which hit a 40-year high of 9.1% last summer and remained stubbornly high at 6% year-over-year in February.

Higher rates encourage saving over spending, which can tame the pace increases. But they can also dampen demand, pull down asset prices, and elevate the risk of a recession.  

According to Rosenberg, the Fed already made a misstep when it raised interest rates at the same time the yield curve was deeply inverted last fall. That's when Treasury yields saw their biggest inversion since 1981, traditionally seen as an indicator of a looming recession. 

The economist further noted that once deflation in rental prices starts to show up in official inflation readings, the rate is likely to fall more than the market expects. Shelter makes up 30% of the consumer price index.

Investors are watching for the March reading of CPI, due Wednesday, for a steer on whether the inflation rate could prompt the Fed to bring in another rate hike at its May meeting. Wall Street expectations are for a print of 5.2%, according to Bloomberg estimates.

Jerome Powell, the chair of the US central bank, has said interest rates will likely need to stay elevated until the labor market cools. To that effect, two-thirds of traders anticipate the Fed will raise rates by another 25 basis points at its next meeting, per CME Group's Fedwatch tool.

Rosenberg has repeatedly dismissed inflation as a threat, given price pressures have cooled from their mid-2022 highs. Meanwhile, he's shown pessimism about the US economy, warning that a recession has already hit corporate profits.