US inflation is still too high even as upside risks abate
Upside risks to global inflation from the energy shock have abated, but US inflation is still too high, pointing to higher interest rates.
Add us as a preferred Google source
US core inflation was in line with market forecasts in May, tracking a fraction above the Fed’s forecast profile, with annualised core PCE inflation of 3¾% in trend terms still well above the bank’s 2% target.
The best news for inflation globally is that the upside risks from the energy shock have abated, while in the US, the boost to goods prices from tariffs should fade from around the middle of this year.
However, the goods news on the energy shock also means that the downside risks to growth have dissipated, which means that most central banks are left with core inflation that is still too high relative to targets.
Some central banks have started raising rates, including the ECB, BoJ, and RBA, and the Fed seems likely to follow over the coming months.
The current average policy rate in the US is 3.6% and policy rules now suggest that it should be about 4½% (previously 4%). This underscores the deep division among policymakers on the FOMC, where about half the committee is happy to keep rates on hold and the other half would prefer to raise rates at least once this year.
Fed Chair Warsh has not shown his hand, abruptly refraining from offering forward guidance to the market and repeating that the Fed will achieve price stability without spelling out how that will happen.
Warsh is speaking at the ECB’s annual policy conference next week and there will be little point to his participation if he repeats his press conference strategy of not answering questions.
That said, his confirmation hearing and recent actions suggest that he probably wants the Fed to keep rates steady heading into the mid-term elections by persuading his colleagues to focus on lower trimmed mean inflation rather than the better-known core PCE measure and taking up their time with a number of new taskforces.
While CCI's analysis has shown that trimmed mean inflation does a good job at approximating the trend in inflation, even there the story is not as favourable as Warsh might hope.
That is, annualised trimmed mean inflation briefly touched the 2% target late last year, but picked up again and is currently running at about 2¾%, which is still unacceptably high, reinforcing the risk of higher interest rates.
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
........
Investment Disclaimer
Past performance does not assure future returns. All investments carry risks, including that the value of investments may vary, future returns may differ from past returns, and that your capital is not guaranteed. This information has been prepared by Coolabah Capital Investments Pty Ltd (ACN 153 327 872). It is general information only and is not intended to provide you with financial advice. You should not rely on any information herein in making any investment decisions. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The Product Disclosure Statement (PDS) for the funds should be considered before deciding whether to acquire or hold units in it. A PDS for these products can be obtained by visiting www.coolabahcapital.com. Neither Coolabah Capital Investments Pty Ltd, Equity Trustees Ltd (ACN 004 031 298) nor their respective shareholders, directors and associated businesses assume any liability to investors in connection with any investment in the funds, or guarantees the performance of any obligations to investors, the performance of the funds or any particular rate of return. The repayment of capital is not guaranteed. Investments in the funds are not deposits or liabilities of any of the above-mentioned parties, nor of any Authorised Deposit-taking Institution. The funds are subject to investment risks, which could include delays in repayment and/or loss of income and capital invested. Past performance is not an indicator of nor assures any future returns or risks. Coolabah Capital Investments (Retail) Pty Limited (CCIR) (ACN 153 555 867) is an authorised representative (#000414337) of Coolabah Capital Institutional Investments Pty Ltd (CCII) (AFSL 482238). Both CCIR and CCII are wholly owned subsidiaries of Coolabah Capital Investments Pty Ltd. Equity Trustees Ltd (AFSL 240975) is the Responsible Entity for these funds. Equity Trustees Ltd is a subsidiary of EQT Holdings Limited (ACN 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT).
Forward-Looking Disclaimer
This presentation contains some forward-looking information. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward-looking statements. Although forward-looking statements contained in this presentation are based upon what Coolabah Capital Investments Pty Ltd believes are reasonable assumptions, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Coolabah Capital Investments Pty Ltd undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.
5 topics
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 65 executives and over $20 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment...
Comments
Comments
Sign In or Join Free to comment
