Inflation “transitory”, but Fed now projects rate hikes

The Fed continued to stick to its view that the surge in inflation "largely" reflects "transitory factors", but officials revised their inflation projections up significantly for this year and the median projection now shows two 25bp interest rate hikes in 2023. In his press conference, Chair Jerome Powell argued that the Fed was still “a ways off” from achieving the substantial further progress toward its dual mandate goals that would trigger a tapering of its monthly asset purchases.
Paul Ashworth Chief North America Economist
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US Economics Weekly

Fed becoming more hawkish by the day

The continued surge in Omicron infections suggests that the disappointing December activity data will be followed by further weakness in January, but there are no signs that it will delay the Fed’s accelerating plans to tighten policy.

14 January 2022

US Data Response

Industrial Production (Dec.)

The 0.3% m/m decline in manufacturing output is probably a sign that Omicron-related employee absenteeism was already weighing on output by the end of last year. We expect an even bigger hit in January but, assuming that the surge in infections peaks soon, any losses in output should be fully reversed in February and March.

14 January 2022

US Data Response

Retail Sales (Dec.)

The 1.9% plunge in retail sales in December in part reflects what appears to be a problem with seasonal adjustment process around the holidays. The initial Omicron wave appears to have had only a modest impact. Nevertheless, it means fourth-quarter real consumption growth was a more muted 3.5% annualised, rather than the near-5% we were expecting.

14 January 2022

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US Data Response

GDP (Q1)

Buoyed by the two rounds of stimulus cheques sent out in the first three months of the year, first-quarter GDP growth accelerated to 6.4% annualised, driven by a massive 10.7% surge in consumption. That left the level of GDP less than 1% off its pre-pandemic peak. It will recapture that level in the second quarter and, with the pace of growth we expect, any remaining output gap should be eliminated before the end of this year.

29 April 2021

US Economics Update

Fed remains dovish despite strength of recovery

Although it took a more upbeat tone on the economic outlook and acknowledged that inflation has risen in its statement released after today’s FOMC meeting, the Fed offered no hints that it was considering slowing the pace of its asset purchases, let alone thinking about raising interest rates.

28 April 2021

US Data Response

Employment Report (Mar.)

The better than expected 916,000 rebound in non-farm payrolls in March still leaves employment 8.4 million below its pre-pandemic peak from just over a year ago but, with the vaccination program likely to reach critical mass within the next couple of months and the next round of fiscal stimulus providing a big boost, there is finally real light at the end of the tunnel.

2 April 2021
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