It can be deduced that the bond rates do not price an inflation explosion, and therefore do not follow the expected scenario. The fact that longer-term Treasury yields cannot give weight to the upward trend indicates that the Fed’s tendency to make a pricing on the medium-term inflation expectation is predominant. On the other hand, we can see the effects of inflation on spending abilities. This may cause individuals to spend less with less confidence in the economy. Retail sales are still gaining traction, with households still able to spend strongly, a slightly improved economy, some increased mobility, and some return to employment. As for Michigan consumer confidence, which was announced today, we see that inflationary concerns were a factor in the short term, as index decreased from 85.5 to 80.8. In the 5-year inflation expectation; There is an increase from 2.8% to 2.9%.
Powell said this week that “there is still time to make tangible progress, the job market is still not up to speed to cut back on bond purchases.” In turn, he acknowledges the pressure of high inflation and that it will take several months. Prices are strong and rising at an above-average rate. We will likely see this pressure on input and selling prices. It is up to the Fed to absorb the impact of further warming of this strong inflationary environment, particularly from loans and the real estate market. Because interest rates close to zero create demand. It is also feared that raising interest rates prematurely will push it back into a cycle of deflation. In the near future, we will probably watch the Fed hawks and doves put forward their justified arguments. It can be the subject of simulations, let’s see if we can provide inflation and sustainable growth dynamics together when we reflect the conditions to the simulation. The speeches at the July 28 meeting will play an important role in drawing the guidance and the Fed may create an opportunity for communication before the end of the year.
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