Inflation, wage data, challenge Fed 'transitory' narrative
Price and wage increases running at multi-decade highs may challenge Federal Reserve officials this week as they try to maintain a balance between ensuring inflation remains contained and giving the economy as much time as possible to restore the jobs lost since the pandemic.
Investors on Monday continued to increase their expectations that high and persistent inflation would force the Fed to raise interest rates sooner and faster than policymakers have projected. Contracts in federal funds futures now imply three quarter-point rate increases next year, versus two as of late last week, according to data from the CME Group's FedWatch.
Purchasing managers, meanwhile, see price pressures continuing to build, with the Institute for Supply Management's Price Index rising sharply as manufacturing firms shouldered higher input costs.
Though policymakers would prefer to remain patient in raising rates, the window for them to hold off may be narrowing, economists at Goldman Sachs said as they became the latest to accelerate their rate hike call, moving it ahead a full year to July 2022.
By then, Goldman economist Jan Hatzius and others wrote that they expect inflation, as measured by the closely monitored core personal consumption expenditures price index, still to be above 3% - a run of inflation not seen since the early 1990s and one well above the Fed's 2% target.
Reference: Reuters
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