10 Jul 2015
US: Inflation pressures building, but no clear call for the Fed to act – ING
FXStreet (Barcelona) - Rob Carnell, Chief International Economist at ING, expects the US inflation to reach Fed’s target through the fourth quarter of this year, but if external conditions remain shaky, the Fed might find another excuse to postpone its rate hike plan.
Key Quotes
“Disappointment about the recent labour market report may have put some downward pressure on Treasury bond yields, but the disappointment was mainly a reflection of expectations that had been lifted “excessively” by the strong message coming from other high frequency labour market data. The headline payrolls figure was close to the previous trend rate, and the larger-than-expected fall in the unemployment rate to 5.3% puts it right on the cusp of the Fed’s view of longer term full-employment, with other measures of labour slack providing further evidence that rates no longer need to be at zero percent.”
“Once again, the wages component of the labour release was soft, despite growing anecdotal evidence, including from sources such as the Fed’s Beige Book, that wage pressures are building. And until there is more evidence for building wage growth, concern that the Fed is ‘falling behind the curve’ with respect to inflation will remain muted.”
“There is also some evidence that inflation pressures are building in other parts of the economy. Anecdotes of strong rental price growth are backed up by more solid data from CPI data. The large weight of rents in both headline and core CPI baskets supports our forecast that inflation will head towards the Fed’s longer run target of 2.0% YoY through 4Q15, even exceeding it unless oil prices continue to fall back, with core inflation also nudging higher. That said, if external conditions remain shaky, the Fed could yet find an excuse for further inaction.”
Key Quotes
“Disappointment about the recent labour market report may have put some downward pressure on Treasury bond yields, but the disappointment was mainly a reflection of expectations that had been lifted “excessively” by the strong message coming from other high frequency labour market data. The headline payrolls figure was close to the previous trend rate, and the larger-than-expected fall in the unemployment rate to 5.3% puts it right on the cusp of the Fed’s view of longer term full-employment, with other measures of labour slack providing further evidence that rates no longer need to be at zero percent.”
“Once again, the wages component of the labour release was soft, despite growing anecdotal evidence, including from sources such as the Fed’s Beige Book, that wage pressures are building. And until there is more evidence for building wage growth, concern that the Fed is ‘falling behind the curve’ with respect to inflation will remain muted.”
“There is also some evidence that inflation pressures are building in other parts of the economy. Anecdotes of strong rental price growth are backed up by more solid data from CPI data. The large weight of rents in both headline and core CPI baskets supports our forecast that inflation will head towards the Fed’s longer run target of 2.0% YoY through 4Q15, even exceeding it unless oil prices continue to fall back, with core inflation also nudging higher. That said, if external conditions remain shaky, the Fed could yet find an excuse for further inaction.”