Sticky core inflation & wages growth a headache for the Fed
US inflation and wages growth have peaked, but remain uncomfortably high for the Fed.
The Fed meets on 2-3 May and should raise the funds rate by 25bp to a range of 5-5¼%.
Recent instability in regional banks will tighten financial conditions, but the problem for the Fed is that core inflation and wages growth are not decelerating as fast as policy-makers would like and remain uncomfortably high.
The stickiness of consumer prices and wages growth is clear from the most recent readings of the Fed’s preferred measures of consumer prices and labour costs:
- Monthly trend inflation for the core PCE deflator is running at 4½%, which is still very high relative to history and well above the Fed’s 2% target; and
- Annualised trend growth in the private-sector employment cost index is running at 4¾%, which is still the strongest growth in years and well above trend growth of 3½% in the more volatile average hourly earnings series.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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