Long, long ago, even before the 2008 global financial crisis, the world\u2019s central bankers, including the Fed, shifted their focus from trying to fight inflation to trying to create it. As we know, however, that pursuit of the holy grail of 2% has taken more than a dozen years, and now that we appear to be there, and well beyond it, in fact, the Fed refuses to believe it. <\/p>\n
Ever since the economy began reopening earlier this year, the U.S. year-on-year inflation rate has been rising steadily and strongly, well above the Fed\u2019s 2% target. In May, the YOY rise in the consumer price index hit 5.0%, while the core index, which excludes food and energy prices, rose 3.8%. Looking ahead, it\u2019s hard to see inflation easing anytime soon, given the trend in rising worker\u2019s wages, which once on the books are going to be hard to pull back, especially given the dearth of workers relative to job openings. Prices are also rising due to strong pent-up demand that is far outpacing the supply of goods, due partly to the lack of workers. <\/p>\n
Yet Fed Chair Jerome Powell continues<\/a> to insist that this recent surge in inflation is \u201ctransitory,\u201d a mere temporary reaction to the economic reopening. <\/p>\n Is he saying that because he really believes it, or because he\u2019s worried what will happen if the Fed starts to turn down the juice, even a little bit, and with a fair warning?<\/p>\n In his defense, three straight months of higher-than-normal inflation, at least compared to the past 20 years or so, probably isn\u2019t a reason to think that inflation is \u201csticky.\u201d Let\u2019s see what happens over a prolonged period, as the Fed says it will do itself before it starts to tighten monetary policy by either raising interest rates or to reduce its mammoth purchases of government and mortgage debt, or both. <\/p>\n This free report will provide a detailed analysis on the stock's fundamental performance, events to watch out for in the near future, target prices, and more! You'll get a new pick every Tuesday.<\/p>\n Request This Week's Report<\/a><\/b>\n <\/div>\n<\/div>\n After all, while inflation is indeed heating up, the Fed is more focused on the job market, which has improved massively over the past several months but is still well below what it was before the pandemic-induced lockdown in early 2020. Last month, the unemployment rate edged up to 5.9%, down from 11.1% a year earlier but still 2.4 percentage points above the 3.5% rate it stood at in February 2020, just before the government shut down most of the economy. In addition, new jobless claims are down more than 50% since the beginning of April, but they\u2019re also about 50% higher than they were before the lockdown. So, in the Fed\u2019s mind, they still have a lot of work to do. <\/p>\n That\u2019s not even considering what the financial market reaction would be if the Fed started tightening policy. Can you say \u201ctaper tantrum\u201d?<\/p>\n However, the odds of that happening seem pretty remote. <\/p>\nSee INO.com's Stock of the Week<\/a><\/h5>\n