Fed Chair Jerome Powell is resolute in his belief that the burst of stronger inflation we are about to see will prove temporary, with underlying inflation dropping back to the 2% target next year. We are not convinced. Given the breadth of the upward pressure on not just prices but wages too, we believe this will develop into a sustained wage-price spiral. We expect core inflation to consistently exceed the Fed’s target over the next few years although, with the Fed more focused on achieving its inclusive full employment goal, we still don’t expect the Fed to begin hiking interest rates until 2023.
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