Fed remaining dovish as supply-side constraints mount

In a relatively quiet week, the few data releases we did get added to signs that shortages are pushing up prices further and restraining the pace of economic recovery.
Michael Pearce Senior US Economist
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US Economics Weekly

Powell signals turning point in policy

Fed Chair Jerome Powell’s congressional testimony this week was markedly more hawkish. We wouldn’t characterise it as a full-blown Volcker moment. But there could be parallels with former Chair Alan Greenspan’s notorious February 1994 Humphrey-Hawkins testimony.

3 December 2021

US Data Response

Employment Report (Nov.)

The disappointing 210,000 gain in non-farm payrolls in November suggests the labour market recovery was faltering even before the potential impact of the new Omicron variant, possibly due to the rising infection rates in the Northeast and Midwest. Nevertheless, the Fed is still likely to push ahead with plans to accelerate the pace of its QE taper at this month’s FOMC meeting.

3 December 2021

US Data Response

ISM Manufacturing Index (Nov.)

The November ISM manufacturing survey suggests that supply shortages are yet to ease significantly, but it does at least echo anecdotal reports that they are no longer getting worse.

1 December 2021

More from Michael Pearce

US Economics Focus

Labour shortages will last well into 2022

The widespread labour shortages evident in the survey data and job opening & quit rates are only partly due to transitory factors, including enhanced unemployment benefits, childcare constraints, and virus fears. Limited international migration, the wave of retirements and mismatches in the labour market appear to be playing a bigger role and will last well into 2022. That will put sustained upward pressure on wages, which is a key reason why we expect core inflation will average 2.5% over the coming years.

29 June 2021

US Economics Weekly

Lasting price pressures building

The continued surge in prices last month was again mostly concentrated in sectors reopening or facing intense supply constraints, which allows the Fed to stick with its “largely transitory” story for now. But with signs of cyclical price pressures building and the extremely strong job openings and quits figures pointing to stronger wage pressures, we believe the Fed will eventually have to acknowledge that inflation will remain elevated for much longer.

11 June 2021

US Data Response

ISM Manufacturing Index (May)

While the headline ISM manufacturing index edged up to 61.2 in May, from 60.7, the main takeaway from the release was that shortages of workers, and not just raw materials, now appear to be playing a key role in holding back production and pushing up prices.

1 June 2021
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