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Fed inflation indicator reformers call: policy changes are imperative

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Original title: It’s time to signal!Fed’s inflation indicator reformers call: policy changes are imperative

Summary

[Call from Fed’s inflation indicator reformers: policy change is imperative]This week, the market will usher in the test of key US inflation data. Prior to this, the Fed’s major inflation indicator reformers said that policy needs to be changed. Economists who have helped change the way the Fed assesses long-term inflation expectations say that the current level of inflation means the Fed needs to start laying the groundwork for scaling back its massive bond purchase program. (FX168)

This week the market will usher in the test of key U.S. inflation data. Before that,MidlandReformers who save key inflation indicators say that policy needs to be changed.

Helped changeMidlandEconomists who assess the way the Reserve Bank assesses long-term inflation expectations said,The current level of inflation meansMidlandReserves need to start laying the groundwork for scaling back large-scale bond purchases.

About 20 years ago, he served ascurrencyWhen working with the head of financial market analysis, Brian Sack worked with colleagues to support the use of forward-looking indicators of inflation expectations to help guide policy.He is now a hedgefundDE. Shaw & Co. Head of global economics, he said,The five-year/five-year forward break-even inflation rate has risen to a level, and further increases will cause problems for the central bank.

Last month, theinterest rateReached the highest point in 7 years, reaching 2.55%. Filtering out some short-term noise that affects consumer prices means that in 2026-30, the average annual increase of the price index targeted by the Fed is expected to exceed 2%. Therefore, in the eyes of investors, the Fed is actually moving towards achieving an average inflation target of 2%.

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Sack said it is beneficial for inflation to rebound from the extremely low levels at the beginning of the pandemic.But if you push it furtherQualcommInflation expectations will make it more difficult for the Fed to achieve the two goals of price stability and maximum employment.

  “Inflation expectations have risen to a level consistent with the Fed’s mission, so my view is that the Fed should not allow inflation expectations to rise further,” said Sack, the former head of the New York Fed’s market team. “Maybe it is time to adjust the policy information to reflect this. Up.”

In fact, the signal adjustment may have already begun. A number of Fed officials said that the time to discuss reducing the size of bond purchases may be approaching.

The Federal Reserve is currently adding $80 billion in public debt and approximately $40 billion in mortgage-backed securities to its balance sheet every month to support economic growth and keep the market running smoothly. Officials are not expected to adjust this speed at the meeting next week.

Most Fed officials insist that the current inflationary pressures are mainly a temporary result of the imbalance between supply and demand that has emerged as the economy recovers. Compared with the abnormally low level a year ago, the latest data also appears to be abnormally high.

U.S. Treasury Secretary Janet Yellen said on Sunday that U.S. President Joe Biden should advance his $4 trillion spending plan, even if these plans will exacerbate continued inflation and higher inflation next year.interest rate. But she said these measures are not enough to cause excessive inflation.

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Economists such as Roger Bootle, Jason Furman, and Lawrence Summers are not convinced that the acceleration in inflation will be temporary. Summers has warned that in addition to the pressure of economic stimulus and pent-up demand, rising housing, medical services and labor costs will also have an impact.

For the central bank, this is a crucial debate. They view the expectations of price pressures as an important part of the actual trajectory of inflation. After they adopted a new inflation targeting system, this dynamic became even more important: To help the economy recover lost jobs, the Fed now plans to keep interest rates low until prices rise by an average of 2% over a period of time, depending on Long-term inflation expectations have also remained at this level.

The 5-year/5-year break-even inflation rate measures the average annual increase in consumer prices over the five-year period starting from 2026 by bond traders. It is derived from the most well-known market standard of inflation expectations: the break-even inflation rate, which measures the gap between the TIPS yield and the standard Treasury bond yield. This is to allow the outside world to have a clearer interpretation of this policy factor and filter out the noise in the next few years.

On May 12, the 10-year breakeven inflation rate surged from the low of 0.47% in March 2020 to 2.59%, the highest level since 2013. It is now around 2.4%.

Some investors played down the rise of the breakeven index, saying that it needs to be revised down because these data also reflect the premium brought by inflation risks. They believe that inflation risk is more about uncertainty about the path of price pressure than actual inflation expectations.

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Sack disagrees with this view. His analysis shows that the inflation risk premium is actually negative, at most zero, which means that actual inflation expectations are higher than the level indicated by the break-even. This is because when the economy deteriorates, the price of risky assets tends to fall, and the break-even ratio also falls. In this case, the poor liquidity of TIPS transactions is also a factor.

In April of this year, the United StatesCPISet the most since 2008DatongThe rate of increase compared with the same period last year rose 4.2%. The May data that is expected to be released this Thursday will show that the CPI has risen by 4.7% year-on-year.

For financial markets, the initiation of discussions on reducing the scale of bond purchases will mark an important moment, as this will be a precursor to the Fed’s withdrawal of economic support measures.

As the promotion of vaccines has triggered a surge in consumer spending, expectations for US economic growth have also risen. Economists expect this quarter’s annual economic growth rate to be approximately 9%, compared with 6.4% in the previous quarter.

“Implementing quantitative easing in the current season when the economy is growing so rapidly will not help curb inflation expectations,” Sack said.

(Article source: FX168)

(Editor in charge: DF537)

Solemnly declare: The purpose of this information released by Oriental Fortune.com is to spread more information and has nothing to do with this stand.

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