In the busy economic publishings week before the Fed, the US inflation figures for August will come to the fore today. We will examine the factors that provide the tapering phenomenon and pose a risk in terms of inflation outlook and expectations, which should be handled from different dimensions, before the data. Against the expected 5.3% inflation, the PPI announced last week shows that price pressures will not ease in the near term, as it points to a potential and widening natural limit above 8%. Global supply and transportation problems, related input and freight costs also confirm this thesis. As a matter of fact, the movement towards policy that will limit the demand/consumption mechanism that may be under the control of the Fed at the point of inflationary pressure continues, and this shows that we are close to the tapering phenomenon. A reading that is significantly higher than the market forecast may encourage consideration at the September 22 FOMC meeting to reduce its asset purchase program.
Concerns about a slowdown in global economies and inflationary pressure are the mainstays of the current debate over whether or not we are moving towards stagflation at this stage. The most important notch in the policy contraction of central banks comes from the slowdown concerns. For this reason, Central banks (Fed, ECB, BOE, etc.) that will tapering will follow a gradual reduction strategy on a logical level. Because this dynamic does not depend on a single variable, and those who are at the driving seat of the simulation now need to catch the most ideal line. This is called an asset reduction that does not slow down the economy. When the current QE background and the Fed balance sheet size are taken into account; It seems that a broad enough policy will remain in effect for a while. Therefore, this is not a very difficult ground to apply. The compelling issue is the success in reducing inflation. From here, we pass to the part of expectations, where the Fed is actually right in theory about temporaryness, but consumer behavior can spoil the situation.
Price pressures showed little sign of diminishing significantly, despite a slowdown in economic growth. One concern is that sustained price increases will lead to higher wage inflation, which will push some central banks to tighten monetary policy, which could exacerbate the Delta wave slowdown. Downside factors, particularly Covid variants, will be important in assessing whether the FOMC can temporarily suspend tapering plans. The reverse side of the tapering phenomenon stems from this risk. However, high inflation increases wage demand and higher wages also increase inflation. Namely; Increasing consumption trends and deteriorating expectations bring demand forward on the basis of the belief that “prices will hike more”, and the reflection of the cost phenomenon on prices in the short term increases the coefficient of demand. Due to the high mobility in the economy, an increase in demand is inevitable. Companies also have to keep the pay scale high in order to fill employment positions. This is also important in terms of the tendency of individuals to avoid unemployment benefits and provide organic employment growth. Otherwise, we will be back in the process of inorganic abundant financial aid, which is not desirable in the exit phase of the crisis as the federal government’s budget priorities in the US are changing. In particular, the Fed is in a position to reduce the demand phenomenon, which is directed to private consumption and fed by personal loans, by increasing market interest rates. This is the path of the process that leads us towards policy contraction.
CPI and US 5yr5yr forward break-even (US nominal 5-year forward-looking bonds – US 5-year forward inflation-linked bonds = 5yr5yr forward break-even)… Source: Bloomberg
The main findings showing that inflation is expanding and may become permanent are intensified, and the point reached is that the monthly cooling data will only save time. The Fed will likely not taper immediately at its September meeting, but will leave the door open for doing so at the next two subsequent meetings. So, Powell will probably proceed with explanation. Here we will look at where to give more references to whether inflation is temporary or its risks are increasing. Tapering is inevitable, balances are important..
Kaynak Tera Yatırım
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı
