Expect Inflation for Years Ahead

#inflation #Fed


“Inflation will remain elevated for 4 yrs or more Vs the hype of it being transitory” — Paul Ebeling

It was “fascinating so many deem inflation as transitory when stimulus, economic growth, asset/commodity/housing inflations (are) deemed permanent,” the BoA’s Top strategist Michael Hartnett said in a note Friday.

We see inflation in the 2%-4% range over the next 2-4 yrs.

US inflation has averaged 3% in the past 100 ys, 2% in the 2010s, and 1% in Y 2020 under President Trump (45), but it has been annualizing at 8% so far in Y 2021 under Mr. Biden.

Global stocks held a record highs hrs ahead of the reading of May core PCE (personal consumption expenditures index), an inflation gauge tracked closely by the Fed. The gauge is estimated to rise 3.4% Y-Y.

Fed Chairman Powell vowed on Tuesday not to raise interest rates too quickly based only on the fear of coming inflation. The comments were seen as a move to soothe investor nerves after a perceived hawkish monetary policy meeting last wk suggested officials believed interest rates would rise as soon as Y 2023, a yr earlier than anticipated.

Clients are heavily invested in equities, with cash allocations well below long-term averages at 11.2%.

In the wk to Wednesday, investors pumped $7-B into equities and $9.9-B into bond funds, while pulling 53.5-B from cash funds.

Within stockss, emerging market funds saw outflows of $1.6-M the most since September 2020.

As 1-H of Y 2021 draws to close higher inflation, hawkish central banks and weaker growth are the Key themes to focus on in 2-H.

Stocks finished up Friday, and the S&P 500 index closed out its best wk since February. Only last wk it had its worst week since February on concerns about inflation.

The S&P 500 index closed up 14.21 pts, or 0.3%, at 4,280.70.

Have a positive weekend, Keep the Faith!