15 Jul 2014
Recent trend in US inflation surprises viewed against the level of real rates - J.P. Morgan
FXStreet (Łódź) - John Normand, Global FX Strategist at J.P. Morgan signals that in the upcoming weeks four key indicators for assessing the evolving US inflation outlook and its impact on markets will be published: CPI on July 22, the quarterly employment cost index on July 31, and the PCE deflator plus average hourly earnings on August 1.
Key quotes
"It is already apparent that US inflation bottomed this spring on CPI and PCE measures but remains at very low levels of around 2%, a pattern the Fed Chair characterizes as 'noisy'."
"Perhaps less obvious is that most CPI releases over the past three months have surprised to the upside; that forecast errors tend to be directional with actual inflation; and that the
interaction of these surprises with Fed policy can be quite influential on the dollar."
"Spring 2014 is starting to look quite like 2004, with real rates declining as inflation comes in higher than expected. It would be churlish to call this difference a credibility deficit since the Fed has a dual inflation/employment mandate and because it is still early days in the US
interest rate cycle."
"But the recent trend in inflation surprises viewed against the level of real rates and the Fed's overall policy stance are a reminder of what flimsy ground the dollar sits on this summer unless the Fed’s tone shifts soon."
Key quotes
"It is already apparent that US inflation bottomed this spring on CPI and PCE measures but remains at very low levels of around 2%, a pattern the Fed Chair characterizes as 'noisy'."
"Perhaps less obvious is that most CPI releases over the past three months have surprised to the upside; that forecast errors tend to be directional with actual inflation; and that the
interaction of these surprises with Fed policy can be quite influential on the dollar."
"Spring 2014 is starting to look quite like 2004, with real rates declining as inflation comes in higher than expected. It would be churlish to call this difference a credibility deficit since the Fed has a dual inflation/employment mandate and because it is still early days in the US
interest rate cycle."
"But the recent trend in inflation surprises viewed against the level of real rates and the Fed's overall policy stance are a reminder of what flimsy ground the dollar sits on this summer unless the Fed’s tone shifts soon."