Fed plays down prospect of rate hikes

The updated economic projections released after the Fed’s mid-March meeting show that officials expect strong economic growth this year to have only a transitory impact on inflation, which explains why most still aren’t thinking about thinking raising interest rates. Even if inflation proves more stubborn, we expect their new framework will allow them to justify leaving rates unchanged over the next few years.
Michael Pearce Senior US Economist
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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

Consumer Prices (May)

The further jump in core CPI inflation to a 28-year high of 3.8% in May, from 3.0%, was again driven by the same handful of categories most directly affect by the lifting of virus restrictions. But there were also signs of emerging inflationary pressures in other sectors, including housing costs and restaurant prices, which suggests that not all the current upward pressure on inflation will prove transitory.

10 June 2021

US Fed Watch

Talking about talking about tapering

Fed officials may finally begin ‘talking about talking about’ tapering their asset purchases at next week’s FOMC meeting. But with recent data leaving the economy still some way from making “substantial further progress” towards the Fed’s full employment goal, we suspect that taper won’t begin until early next year.

9 June 2021

More from Michael Pearce

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

US Economics Weekly

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.

21 May 2021

US Economics Update

How big a risk is the slowdown in vaccinations?

The sharp drop in demand for vaccines in recent weeks is a risk to our assumption that the rollout reaches critical mass over the coming months. That could mean infections and hospitalisations remain elevated, but we doubt that would be a big drag on the economic recovery.

4 May 2021
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