Daily Insight
Group Economics Macro & Financial Markets Research
12 May 2016
Will the Fed allow an inflation overshoot? Maritza Cabezas Senior Economist
US inflation measures show modest signs of inflation pressure
Fed officials have suggested the central bank could allow a brief overshoot in
Tel: +31 20 343 5618
US inflation to reach 2% target
maritza.cabezas@nl.abnamro.com
This would require the Fed to remain accommodative for a while
US inflation measures show modest signs of inflation pressure There are very few signs that inflation pressures are building up. A report released on Tuesday, from the National Federation of Independent Business (NFIB), suggests that small businesses see very little on the way of price inflation in the coming time. And while we expect a modest pickup in wage inflation, we think that modest GDP growth and subdued inflation abroad will cap the upward pressure on prices. Meanwhile marketbased inflation expectations have been trending up moderately lately, influenced mainly by the higher oil prices, while longer-run inflation expectations reported by the University of Michigan Survey of Consumers has been drifting down. Core PCE, the preferred inflation measure for the Fed, increased by 1.7% yoy in March, after hovering around 1.3% for almost a year. Headline inflation could rise temporarily above 2% % yoy
6 5 4 3 2 1 0 -1 -2 05
06
07
08
CPI - all items
09
10
11
12
CPI - core
Source: Bloomberg
Insights.abnamro.nl/en
13
14
15
PCE - core
16
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Daily Insight – Will the Fed allow an inflation overshoot? – 12 May 2016
FOMC members talk about allowing a brief overshoot in US inflation to reach 2% target Over the last few days, the more dovish FOMC officials have been floating the idea that the Fed could allow inflation to overshoot. Federal Reserve Bank of Chicago President Evans said in an intervention in London that the Federal Reserve should consider allowing inflation to temporarily rise above the 2% target. The argument is that a too prolonged spell of low inflation entails larger risks, while a brief overshoot may help anchor inflation expectations close to the 2% goal. Other members, including the Chair of the Fed and Fed Governor Lael Brainard, have signalled in separate interventions made in the past few months the risks to the inflation outlook and the need to anchor inflation expectations. They have suggested that if inflation expectations derail, this could require a more accommodative stance of monetary policy than would otherwise be appropriate. We think that headline inflation will return to the 2% target, but that it will require the Fed to remain accommodative, supporting our view of no rate hikes this year.
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Daily Insight – Will the Fed allow an inflation overshoot? – 12 May 2016
Day
Date
Sunday Sunday
08/05/2016 08/05/2016
Monday Monday Monday
09/05/2016 09/05/2016 09/05/2016
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
10/05/2016 10/05/2016 10/05/2016 10/05/2016 10/05/2016 10/05/2016
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016 12/05/2016
Friday Friday Friday Friday Friday Friday Friday Friday Friday Friday
13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016 13/05/2016
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
CN CN
Imports Exports
Apr Apr
-10.9 -1.8
-4.2 0.4
08:00 11:10 19:00
DE US US
Manufacturing orders - % mom Fed's Evans speaks on Economy and Policy (nv) Fed's Kashkari speaks (nv)
Mar Mar Mar
1.9 -1.2 -1.2
1.0 1.0 1.0
03:30 06:30 08:00 10:30 12:00 16:00
CN NL DE GB US US
CPI - % yoy CPI - % yoy Industrial production - % mom Trade balance - GDP mln NFIB small business optimisme - index US Job Openings by Industry
Apr Apr Mar Mar Apr Mar
2.3 0.0 -1.3 -3830 94 5757
2.3
10:00 11:00 13:00 13:00 14:00 17:00 17:45 19:30
CN CN CN NO EC GB GB IN US US US
Property prices index - % yoy Property prices index - % yoy M2 money growth - % yoy Policy rate - % Industrial production - % mom Policy rate - % BoE size of asset purchase programme - GBP bn CPI - % yoy Fed's Mester speaks about inflation dynamics (v) Fed's Rosengren speaks (v) Fed's George speaks on economy (v)
Apr Apr Apr May 12 Mar May 12 May Apr
1370 2336 13.4 0.5 -0.8 0.5 375 4.8
NL DE DE EC US US US US US KR
GDP - % qoq CPI - % yoy GDP - % qoq GDP - % qoq Retail sales - % mom Prod. prices index excl food and energy - % mom Prod. prices index - % mom Univ. of Michigan cons. confidence - index Business inventories - % mom Policy rate - %
1Q P Apr F 1Q P 1Q Apr Apr Apr May P Mar May 13
0.3 -0.1 0.3 0.6 -0.3 -0.10 -0.1 89.0 -0.1 1.5
06:30 08:00 08:00 11:00 14:30 14:30 14:30 16:00 16:00
-0.1
ABN AMRO
0.6
0.5 -0.3
840.7 1347.2 13.5 0.0 0.5
0.5 -0.2 0.5
0.4 -0.1 0.6 0.6 0.7 0.10 0.3 89.8 0.1
0.6 0.5 0.8
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
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