Consumer prices, excluding volatile food and energy components, rose well above the Federal Reserve’s 2 percent target in May, reaching levels not seen in nearly 30 years and reinforcing inflation concerns.
The so-called core personal consumption expenditure (PCE) price index, which does not include food and energy and is the Fed’s preferred method for measuring inflation, rose 3.4 percent in the 12 months to May, after rising 3.1 percent in the year from April. Hui. Commerce department said on friday. Last time The core PCE inflation gauge saw a similar year-on-year vault in April 1992.
The Fed views the core PCE as the key inflation gauge that informs its monetary policy, with an inflation target of 2 percent over a long-term average.
Fed officials have said repeatedly that they believe the current round of price hikes is fleeting as they continue to tolerate hot-running inflation in the short term, arguing that the crisis should support support measures. Withdrawing prematurely — with near-zero interest rates and about $120 billion in monthly bond buys — would run the risk of derailing the economic recovery.
Federal Reserve Bank of Minneapolis chief Neil Kashkari said on Friday he does not expect high inflation readings to remain and that large numbers will return to the labor market from the US decline when the supplementary federal pandemic boosts unemployment.
Industry groups and business owners have complained about labor shortages, and Republican leaders in dozens of states have opted to boost federal unemployment compensation to help address the recruitment shortfall.
Economists and investors have broadly shifted their spectrum of concerns from slowing growth, high unemployment and deflationary pressures to inflation in early 2021, with their eyes now on whether the Fed supports labor market recovery. How does one navigate the delicate balance between trading and rising price pressures.
“You can’t talk to anyone in the investment sector without the inflation scare coming to the fore,” said Robert R. Johnson, professor of finance, Heider College of Business, Creighton University, in an emailed statement to The Epoch Times. said in . “The recent Fed meeting confirmed suspicions that the Fed is starting to remove some of the excess liquidity in the financial system.”
Fed officials last week flagged an accelerated deadline for raising interest rates and acknowledged “remarkably” high expectations for this year’s inflation.
Still, Federal Reserve Chairman Jerome Powell on Tuesday reaffirmed the central bank’s intention to encourage a “broad and inclusive” recovery of the job market, not simply raising interest rates based on fears of impending inflation. to do.
“We will not raise interest rates in advance as we fear a possible onset of inflation. We will wait for evidence of actual inflation or other imbalances,” Powell said in a hearing before a US House of Representatives panel.
Dave Gilreth, CIO of Innovative Portfolios, a firm with $1.3 billion in assets under management, told The Epoch Times that, “we see inflation being a big concern in the second half of the year,” although he did not support the Fed’s view. The suggestion that inflation would be transient as the pandemic-related supply chain and consumption dislocations are eased is not unreasonable.
“So far, large, headline-grabbing, price increases have mostly been limited to commodities, wood and those items where stimulus-increased demand exceeds supply,” he said.
Some economists have expressed concern that if prices rise too rapidly and remain high for too long, expectations of further price increases will take hold, leading to increased wage demand and potentially that kind of wage-price spiral. would be triggered by the economic crisis that crippled the economy in the 1970s.
Gilreth suggested that while there is pressure on wage growth, it will be moderate.
“There is some upward wage pressure in the short term, but in the long run I’m not sure it will last,” he said. “Recent news indicated that over 8 million available jobs were still incomplete. So, there isn’t really a long-term labor shortage, but the dislocation is high due to the nature of unemployment insurance and resumes. “
“What this paradox is – lots of available jobs, but still high unemployment – shows me that a very strong labor market is coming in the next few months. The combination of government payments stagnation and reopening should help improve US job creation. must continue,” he said.