The new president of the United States, Biden, must fight against the pandemic on the one hand and the weakening of the economy under the effect of the pandemic on the other. Accepting a $ 1.9 trillion economic support package before mid-March is also critical before Trump-era support ends on March 14. But, on the one hand, the rise in commodity prices on a global scale, on the other hand, the inflationary pressures that such great support can create create fear in the markets. The upward volatility of US bond yields since early January clearly reflects the fear of inflation. Based on fear, of course, the earthquake in the markets in 2013 is in mind, as the Fed had to signal to shift its overly favorable monetary policy toward tightening.
Today’s inflation data for the US is important from this point of view. It’s not scary either.
Core inflation in the United States, which did not change for the second month in a row in January, explains that the pandemic continued to suppress inflation. The core consumer price index, which excludes variable costs for food and energy, was up 1.4% from a year earlier, according to the US Department of Labor report. The broader CPI increased by 0, 3% month-on-month and 1.4% year-on-year, reflecting the impact of the rise in oil prices.
Despite mild January data, inflation is expected to pick up in the US and increase fear-driven volatility in bond yields in the coming months. With the $ 1.9 trillion support package, expected to pass, to increase individual spending and the expansion of vaccination, the American consumer will return to the field stronger. For now, although the US unemployment rate is far from inflationary pressure, late last week, new Treasury Secretary (former Fed Governor) Yellen said that if the package passes, the economy The US could return to full employment in mid-2022. If the level of full employment is combined with the effect it will have on company costs and rising commodity prices, it will of course create pressure to increase inflation.
But it is already in the middle of 2022, and there is an important process. As vaccination expands, time will tell how much the pandemic will be contained due to mutations.
Therefore, while the announced inflation data created some relief in the bond market, the focus will be on the US inflation data for a long time. The movements in the bond market will increase with each data.
It will also be confusing that US inflation is on a mixed course in the coming months. The depreciation of the dollar will push up prices per currency. The economic slowdown triggered by the epidemic due to the base effect pushed inflation down in the US in the March-May period of last year. Now, as new data comes in, inflation will appear to accelerate. But it is not clear for now if this acceleration will be permanent or not. Supporters of Biden’s $ 1.9 trillion say there is plenty of room for stimulation in the US economy, without fear of a permanent rise in inflationary pressures after the COVID-19 experience. Others fear an explosion in inflation that has not been seen for years.
Biden, Fed Chairman Powell and Treasury Secretary Yellen agree that the economy must be supported “until the recovery is complete.” In line with the Fed’s new inflation approach, it is a process that must be monitored if it will be normal and permanent to increase headline inflation above 2% without clarifying the path of monetary tightening, and if it will be supported by core inflation.
The explanations expected of Powell after this data are important. However, there are no expectations of a significant change in US monetary policy this year; The signal for change is unlikely to come anytime soon. But inflation fears are real, and bond market unrest is likely to continue.
What does the post-inflation data say in the United States? In what way are the bonds? It first appeared on ParaAnaliz.