US: As Markets Remain Unperturbed By Inflation, White House Sees No Cause For Alarm

Republican lawmakers have interpreted the jump in consumer and producer prices as a sign that inflation is spiking at levels that will huဣrt growth, saying thatᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ President Joe Biden's USD1.9 trillion coronavirus relief package overcooked the economy.

But the financial markets appear to be backin♕g Biden's case that any price increases are the fleeting result of the United States restarting after the lockdowns caused by the coronavirus pandemic.

The White House p✅oints to charts that dig into two key market-based measures of inflation and see no cause for alarm in the medium to long term.

The charts look at the inte♋rest rate on the five-year U.S. Treasury note and a measure of expected inflation known as 5y5y, which looks forward f𝓀ive years to investors' five-year inflation expectations.

As of Monday, the 5y5y was trading at 2.28per cent, an indication that annual inflation will be close to the Fede🌺ral Reserve's 2per cent target.

The charts suggest that inflation expectations — despite the recent bump in prices — are within the rea♈lm of expectations over the past 15 years. They also show that market expectations of coming inflation have essentially been flat in recent months.

While the markets offer evidence that the recent bout of price increases could fade in a few months, there are conflicting signals for economists. Demand for houses and other products has outpaced supply, a sign that inflation could be a proble🍨m.

But there is also the possibility that the persistent demand coul🃏d trigger more supplies to come onto the market. The uncertainty has been magnified for vot😼ers as Republican lawmakers say that inflation will devastate the economy and Democrats counter that rising prices are temporary.

Harvard University professor Jason Furman, who served as𓆉 chief economist for the Obama White House𝓰, noted that there are arguments for and against rising inflation.

“The more I think about inflation the less sure I get oꦐf anything,” Furman said Monday on Twitter. He added that🐻 there is a wide range of possible outcomes and “policy decisions should explicitly recognize our uncertainty.”

Biden aides are optimistic that the market figures, along with household sentiment surveys, indicate that inflation will drift down. But they're also cautious in interpreting what'sꦆ next because of the unprecedented nature of shuttering an economy due to COVID-19 an✨d then reopening it with a total of roughly USD6 trillion worth of aid, a sum that includes money approved during Donald Trump's presidency.

The Labor Department said last week that consumer prices rose at an annual✨ pace of 5per cent in May, as prices for used vehicles, airfare and gasoline surged.

Producer prices — what businesses pay for goods and services — are up 6.6per cent from a year ago, the Labor Department said Tuesday. But ma💮rket analysts anticipa𒆙te that the forces driving inflation will lessen.

“The underlying causes of inflation are supply chain disruptions, labor shortages ♏and emerg𓂃ency stimulus which is boosting demand,” said Bill Adams, an economist with PNC Financial Services.

“All of these drivers of inflation will be less of an issue in th🧔e second half of the year.”

It's unclear whether the financial markets' relative calm reflects confidence that the Fed will raise interest rates should inflation st𝄹ay elevated.

Fed officials will end their June meeting on Wednesday, giving forecasts 🍒of economic performance and inflation and potential guidance about when they could lift their benchmark rate from 🌄near-zero.

Senate Republican leader Mitch McConnell has put the blame squarely on Biden for rising prices, arguing that government inteꦡrvention has caused prices and wages to increase to a degree that will ultimately imperil th𒐪e economy.

It's a message with a clear eye to the 2022 midterm electio𝔉ns, when Biden's performance will be at the forefront of voters'𓆉 minds.

“The latest data reinforce what too many Americans have been experiencing firsthand: The Biden admiꦫnistration's partisan spending bill has blunted our nation's economic recovery,” McConnell sa💖id last week on the Senate floor.

“Higher pric🌸es at the gas pump and grocery store. A tougher time for small businesses trying to staff up."