Inflation set another record, aiming at hiking rate 75BP?
On Friday, April 29, data from the US Department of Commerce showed that the US PCE price index in March rose 6.6% year-on-year, slightly lower than the expected value of 6.7%, and the previous value was 6.4%, continuing to beat the highest level since 1982, more than three times the Federal Reserve's 2% target. Wall Street News mentioned that since 2002, this indicator has been adopted by the Federal Reserve as the main indicator for measuring inflation .
core PCE price index , which excludes food and energy prices, rose 5.2% year-on-year, with an expected value of 5.3%, and the previous value of 5.4%, also maintained its highest level in the past 40 years, but it slowed slightly from the previous value of 2 months.
U.S. income level data was also released at the same time. In March, the United States' nominal income increased by 0.5% month-on-month, but the month-on-month increase of personal nominal consumption expenditure (PCE) reached 1.1%, almost twice the expected value of 0.6%. As spending growth exceeds revenue growth for three consecutive months, the savings rate has declined to its lowest level since December 2013.
In terms of wages, private sector wages rose 12.8% year-on-year in March, the highest level since September last year, while government wages rose 5.4% year-on-year, lower than the previous value of 5.5%. After the
data was released, the dollar index rose slightly in the short term, and is now at 103.26%. Spot gold fell slightly in the short term and is now at $1,911.82 per ounce. The gains in the yields of 2-year and 3-year U.S. Treasury bonds have expanded slightly, and are now rising by more than 11 basis points.
Inflation remains high and the economy shrinks beyond expectations. What should we make a decision?
Data released by the U.S. Department of Commerce on Thursday showed that the initial value of the U.S. GDP annualized quarter shrank by 1.4% month-on-month, the first decline since the pandemic lockdown recession in the first half of 2020, and this happened shortly after the Federal Reserve began to tighten monetary policy.
combined with the US PCE in March to continue to score a 40-year record... This seems to be the "symptom" of stagflation. How will Powell choose between economy or inflation?
CICC analyst Liu Zhengning and others analyzed:
Judging from the sub-item data, the US economy in the first quarter was not as bad as GDP. The US economy mainly relies on domestic demand, namely consumption and investment, and these two performances were relatively strong in the first quarter. Although exports weakened beyond expectations, the US economy is not highly dependent on exports and its impact is relatively limited.
In view of this, we do not expect the Fed to change its idea of currency tightening, but as the Fed's currency tightening deepens, the endogenous momentum of the US economy will gradually decline.
Wall Street Journal commented that this year's White House has not yet adjusted its domestic agenda based on changing economic and political reality. If Biden does not change the course, then he will have no choice if frustrated voters drive Democrats out of Congress next year.
Learn from history. A lesson from the 1970s was that when the economy rebounded from a recession or near recession, inflation was still too high, and not sticking to the end in the anti-inflation struggle would lead to stagflation, and then the Fed had to tighten monetary policy again, and such a cycle would be repeated. Therefore, it is best to "cut the mess" for inflation. However, according to the experience of "crazy control of inflation" in the Paul Volker in era, if the interest rate hikes quickly and significantly, the US economy will inevitably fall into the "pain" of recession.
So the question is, is Powell Volcker?
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