Inflation will see an intense drop, according to Pantheon’s chief economist Ian Shepherdson.He pointed to easing price pressures, even as wage inflation is slow to return to normal.That means inflation could fall below the Fed’s 2% inflation target by mid-next year, he said.LoadingSomething is loading.Thanks for signing up!Access your favorite topics in a personalized feed while you’re on the go. download the appPrices are set to see an intense drop, and inflation could fall below the Federal Reserve’s 2% target by mid-next year, according to Pantheon’s chief economist Ian Shepherdson.”We are becoming increasingly worried that inflation will fall below the target by the middle of next year,” Shepherdson said in a note on Tuesday.He pointed to pandemic-related drivers of inflation, like rents, consumer spending, corporate profits as well as energy and food prices, that are now reversing. Over the last quarter, rents have begun to plunge in key areas of the housing market. Americans are now beginning to pull back on spending as inflation bites into savings, and corporations have faced major earnings pressure amid rising prices and interest rates. And while wages appear to still be on the rise, the slowdown in the other price pressures should bring inflation lower soon, Shepherdson said. “We expect intense downward pressure on inflation from non-labor costs sources,” Shepherdson said, adding that wage growth would eventually slow as well. “[The Fed] will be able to respond to the weakness of the economy by cutting rates before long, even if the contemporaneous labor costs data are stronger than they would tolerate in the medium term.”Inflation has already been on the downtrend since mid-2022, with the consumer price index inflation up 5% in March, as the Fed hiked interest rates over 1,700% in the past year.Markets are pricing in an 83% chance that the Fed will pause rate hikes at its next policy meeting in June, and a 33% chance the central bank could begin to cut rates in July, per the CME FedWatch tool. The Fed dialing back interest rates is expected to be bullish for equities, with Fundstrat’s Tom Lee predicting as much as a 25% rally if the Fed pauses rates later this year.