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Inflation Fears are not Overblown
Week Ending April 30th, 2021
What an eventful week it was. All the major stock indices touched all-time highs before surrendering their weekly gains on Friday. The major US tech companies produced massive quarterly results this week but the stock price action remained muted as investors are not that confident about the sustainability of this growth pattern in near future.
Powell did not make any policy change this week after Fed's meeting but he noted the rising inflation and classified this rising inflation as transitory. I think Fed knows about the chances/probability of transitory inflation becoming persistent inflation but it does not want to create panic right now. Moreover Fed wants to see average inflation of 2% or more before doing something. I do not know if Fed wants to see average inflation staying above 2% on quarterly basis, or half yearly basis.
On Thursday, commerce department announced that US GDP expanded at annualized rate of 6.4% in first quarter of 2021. On Friday, it was reported that PCE Price Index, the most important inflation gauge used by FED, rose 0.5% in March while core PCE price index rose by 0.4% on monthly basis. The core rate rose to an annual rate of 1.8% from 1.4% in February this year due to the base effect.
As a student of markets, I feel most of the participants are feeling that in last recent expansion, inflation had almost barely touched 2% even after ultra-accommodative policies spanning over most of the expansion, so maybe this time is no different. But this time it's different as I think demand pull as well as cost push factors are both at play right now behind the scene to push inflation in a range above 2%.
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By Jaspreet Singh PaddaWeek Ending April 30th, 2021
What an eventful week it was. All the major stock indices touched all-time highs before surrendering their weekly gains on Friday. The major US tech companies produced massive quarterly results this week but the stock price action remained muted as investors are not that confident about the sustainability of this growth pattern in near future.
Powell did not make any policy change this week after Fed's meeting but he noted the rising inflation and classified this rising inflation as transitory. I think Fed knows about the chances/probability of transitory inflation becoming persistent inflation but it does not want to create panic right now. Moreover Fed wants to see average inflation of 2% or more before doing something. I do not know if Fed wants to see average inflation staying above 2% on quarterly basis, or half yearly basis.
On Thursday, commerce department announced that US GDP expanded at annualized rate of 6.4% in first quarter of 2021. On Friday, it was reported that PCE Price Index, the most important inflation gauge used by FED, rose 0.5% in March while core PCE price index rose by 0.4% on monthly basis. The core rate rose to an annual rate of 1.8% from 1.4% in February this year due to the base effect.
As a student of markets, I feel most of the participants are feeling that in last recent expansion, inflation had almost barely touched 2% even after ultra-accommodative policies spanning over most of the expansion, so maybe this time is no different. But this time it's different as I think demand pull as well as cost push factors are both at play right now behind the scene to push inflation in a range above 2%.