Benjamin Cole | Fed Chair Jerome Powell has stated the Fed’s 2% target is symmetric, which may be code words for “inflation a little above 2% is tolerable.” The US central bank may find fighting inflation resembles heart surgery with a chainsaw.
Just a couple of years ago, deflation was a concern for US economists. And, although it’s true that this threat has almost disappeared, rises in prices have shown themselves to be surprisingly elusive.
“If we analyse the data from the last 25 years, there is very little inflation. Underlying inflation in the US has never really fallen below 1% which means that the secular dynamism in the labour market is reducing inflation, via technology and globalisation,” explains Bruce Kasman, chief economist at JP Morgan.
After US inflation beat estimates in January, it’s likely the market will end up putting even more emphasis on the possibility of seeing inflation rates higher-than-expected months ago, or even stagflation. And, unfortunately, this will continue to spark potential over-reactions which would give way to strong, quick movements.
The minutes released by the FED and the ECB last week shared concern about how to inform about their monetary stance. They fear unsettling the markets should investors wrongly interpret the messages conveyed to them. When you lack a clear policy perspective, the best thing you can do is to manage communication in a fairly tight way.
The minutes of the Fed’s late July meeting released yesterday reflect ongoing concern about muted inflation data, as well as the fact there seems to be some discrepancy amongst FOMC members over when would be the right time to begin the normalisation of the central bank’s balance sheet.
The summer lull may continue to dampen stock market activity during the month of August, but there are two key events on the investor agenda this week. German GDP figures for Q2 and the minutes of the Fed’s late July meeting.
Benjamin Cole via Historinhas | Motor vehicle sales are booming in the United States, up 10% in the last year, and double since the Great Recession. Thanks to blogger Kevin Erdmann of Idiosyncratic Whisk, we have a better understanding of inflation in the U.S. and the role that ubiquitous local property zoning plays in suffocating supply, and thus boosting price.
The Corner | May 22, 2015 | Three main market drivers to watch today: German IFO confidence index, which is expected to disappoint following the ZEW steps; a lower US inflation, far from the Fed’s 2% target –which would serve as a catalyst so that the bags are listed the lack of arguments to raise interest rates this year. Besides, Mario Draghi could address the unemploment issue.
MADRID | February 27th, | The Corner | Negative inflation is likely to be of more concern to German policy makers than it is to their Spanish counterparts today, with low prices being seen as good news for Spanish consumers and the economy as a whole. Elsewhere, attention will focus on Greek GDP, with the possibility that the latest data may underline some of the lingering difficulties between Greece and its EU partners.