Soaring prices will trigger a new attack on Biden, but shrug from Wall Street

Jack Ablin, Chief Investment Officer of Cresset Capital, said: “Obviously, the Fed wants to see some inflation, but one of the mistakes they can make is to make it too hot. And the economy is at very low interest rates. Being completely accustomed, even the slightest rise from the Fed can roll it over. “

Inflation concerns reignited Thursday Ministry of Labor reported Consumer prices in May rose 5% from a year ago, the fastest pace in nearly 13 years. Excluding volatile food and energy prices, so-called core inflation rose 3.8%, the sharpest rise since June 1992.

Democrats and many economists say the numbers are year-over-year and look worse than they really are, given the serious downturn in economic activity during this nationwide blockade of Covid last year. And they say that much of the increase was caused by rising prices for used cars and trucks, as well as airline fares and clothing. All of this is what the country expects when it breaks out of the blockade.

However, the core inflation rate from the previous month also rose more than expected. Also, some economists are less confident that the sharp rise in prices will level off, even if the supply shortage from abroad is alleviated, and consumer demand in the United States has already returned to pre-Covid levels.

Republicans are increasingly grabbing every bit of inflation data, blaming Biden’s agenda and calling on the Fed to stop sending so much money into the system.

“We all need to be very worried,” said Senator Pat Toomey of Pennsylvania, a top-ranked Republican on the Banking Commission. Tweet“The combination of the Fed’s average inflation target and the view that inflation will be temporary is, in effect, [central bank] If inflation continues, it will be behind the curve. Huge parliamentary spending contributes to the problem. It’s time to finish it. “

Some economists, who were previously less worried about the recent rise in prices, are becoming more concerned.

Ian Shepherdson, chief US economist at Pantheon Macroeconomics, said in a note to customers, “The Fed has never revealed how big the reopening was expected, but there have been two policy makers in the past. I’m guessing I was surprised at the numbers for the month. ” “[T]To prevent a sustained rise in inflation next year, it raises the risk that the slack in labor supply that everyone expects in the fall is not enough to reduce wage pressure as much as necessary. “

Still, despite higher-than-expected inflation, bond investors shrugged on the news and long-term interest rates on US government debt fell that day.

Guy Rubas, chief fixed income strategist at financial firm Johnny Montgomery Scott, said:

The Federal Reserve Board will meet next week to provide investors with more guidance on when central banks will begin to abolish some of their financial support, but slower employment growth means a policy shift. It is likely to mean that there is no. Imminent.

White House officials say they continue to monitor recent inflation, but are less concerned. Government officials said much of the rise in inflation in May was due to vehicles and “pandemic-affected services” such as airfares and hotel prices. Without them, inflation would be about the same as that of 2019, he said.

And the expectation within the White House and the Fed is that much of the inflationary pressure will be eased by eliminating supply chain problems and returning more workers to the retail industry.

Officials should also alleviate the current labor shortage if young, recently vaccinated workers feel more comfortable returning to public jobs in hotels, bars, restaurants and stores. Said.

The Byden administration is trying to pass both a major infrastructure spending bill and a family support program aimed at addressing the issue of long-term economic inequality. These plans will increase federal spending by about $ 4 trillion over a decade.

And many economists stick to their belief that rapid inflationary pressures are short-lived, especially given how much used car prices contributed to the latest reports.

“Vehicle prices alone increased core CPI by 0.38 percentage points last month and 0.32 percentage points this month,” Eric Winograd, senior economist for fixed income investment at AllianceBernstein, said in a note to clients. “It seems very unlikely that it will be permanent. If the shortage is mitigated and production recovers, the price of used cars in particular should settle down.”

One of the economists’ main concerns is that inflation is above almost all expectations and the labor shortage may not be alleviated as quickly as many expectations. This was because many Americans emigrated during Covid, decided that the workforce wasn’t worth staying, or felt that persistent childcare issues made it impossible to return to work.

Vicky Redwood, senior economic adviser to Capital Economics, said in a client note, “Inflation could always rise this year as the economy resumes and energy prices recover from last year’s sharp decline. It’s highly prone. ” “But especially in the United States, the increase from the beginning of the year has outstripped even our relatively strong expectations. This may largely reflect temporary factors, but persistent inflation. We continue to believe that the risk of inflation is greater in the United States than in other developed countries. “

Rising rental housing prices also surprised some economists, given that they could prove a sustained rise rather than a temporary rise.

“The surprise of the rise in the consumer price index in May was noteworthy in itself, but the fundamentally important detail was the rise in shelter prices,” said an analyst at Morgan Stanley. “[R]Ent rose 0.24% in May, the largest increase since March 2020, and owners’ equivalent rents rose 0.31% in May, the largest increase since June 2019. “

In the meantime, the Fed has continued its patient approach, with little sense of urgency that much of the price increases will continue.

Federal Reserve Board Chair Jerome Powell wanted to see more employment and wage growth in late April and did not expect inflation to rise sustainably without a healthy labor market. Emphasized. “We are far from full employment,” he said then.

Soaring prices will trigger a new attack on Biden, but shrug from Wall Street

Source link Soaring prices will trigger a new attack on Biden, but shrug from Wall Street

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