Markets are signaling an easing cycle has already started with the Fed now behind the curve on inflation, says a Wall Street chief strategist

• Investors should worry less about what the Fed will do because it's now behind the curve on the inflation slowdown, said Jim Paulsen.
• Markets are signaling an easing cycle has already started, the Leuthold Group's chief investment strategist told Bloomberg TV

Renowned investor Jim Paulsen thinks markets are already entering an easing cycle, making it less important to focus on what the Federal Reserve will do on monetary policy.

The Leuthold Group's chief investment strategist told Bloomberg TV on Thursday that bond yields are falling, the dollar is weakening, and junk-bond spreads are narrowing.

"I don't really care what the Fed is going to do because the Fed isn't driving this ship," Paulsen said. "If I look at what's happening, we're already into a brand new easing cycle right now."

The comments come as consumer prices and producer prices slowed by more than expected in July, giving investors hope that the Fed will take a less hawkish stance on rate hikes.

But the central bank remains steadfast in its goal of bringing inflation back down to its 2% target. This past week, some policymakers have cautioned that it's still too early declare victory on inflation despite the improvement in the latest readings.

Paulsen said the Fed "has been behind the curve the entire time," alluding to its previous failure to recognize that accelerating inflation was more than a transitory problem. Now, the Fed isn't responding soon enough to slowing inflation.

And the reason why inflation is starting to cool off is because financial market conditions began tightening last year, before the Fed first hiked rates early this year, Paulsen said.

"The Fed is still behind the curve, but all the markets are going the other way and starting to ease," he said.

Meanwhile, Paulsen shifted his focus toward the economic outlook, noting that avoiding a recession will be more of a factor for markets than the central bank.

"To keep this going, we'll have to decide that we're not going to recess," Paulsen said. "That to me is almost becoming the bigger issue than inflation right now."