Summary: Market research institutions believe that U.S. inflation will continue to rise in the near term, which could not only affect the health of the U.S. economy but also trigger concerns that the Federal Reserve may tighten monetary policy ahead of schedule.
The U.S. consumer price index (CPI) for April, released officially recently, rose more than market expectations, causing notable market volatility. Market research institutions believe that U.S. inflation will continue to climb in the near term, potentially undermining the health of the U.S. economy and raising concerns that the Federal Reserve could tighten monetary policy earlier than expected.
Data released by the U.S. Labor Department on the 12th showed that, on a seasonally adjusted basis, U.S. CPI rose 0.8% month over month in April and 4.2% year over year, the largest year-over-year increase since September 2008.
UBS Group said the data may suggest inflation expectations are drifting away from the Federal Reserve's targets, fueling concerns that the Fed will eventually be forced to tighten monetary policy.
Market research institutions generally agree that the economic reopening will bring inflationary pressure to the United States, and long-term U.S. inflation expectations are also rising.
JPMorgan Managing Director and Global Head of Research Joyce Chang said at an online seminar on the 18th that inflation will continue to move higher while the Federal Reserve has signaled it will remain patient. Supply-side constraints in the economic reopening will persist in the second half of this year.
In a report released on the 18th, BofA Global Research said the U.S. inflation outlook will unfold in three phases: supply shortages and the economic reopening will push up the prices of goods and services, leading to a temporary rise in inflation; starting in the fourth quarter of this year, prices of goods and services will retreat somewhat, moderating monthly core inflation readings; thereafter, a tightening labor market will modestly push up core inflation indicators.
Joe Perry, senior analyst at foreign exchange broker GAIN Capital, believes that the April U.S. producer price index exceeded expectations, and the increase will pass through to the consumer side, potentially causing May CPI to rise more than expected.
Preliminary survey data released by the University of Michigan on the 14th showed that U.S. consumers expect inflation of 3.1% over the next 5 to 10 years, the highest level in nearly a decade. Survey respondents expect U.S. inflation over the next year to reach 4.6%.
The unprecedented scale of U.S. policymakers' stimulus measures in response to the COVID-19 crisis has raised concerns about excessive stimulus.
Andrew W. Lo, a finance professor at the Massachusetts Institute of Technology, said injecting trillions of dollars into the market after the outbreak of the pandemic is very dangerous. The U.S. economy will emerge from the pandemic stronger, but the concern is overstimulation of the economy.
Myron Scholes, a professor at Stanford University and Nobel laureate in economics, believes that the U.S. Treasury's implementation of quantitative easing directed at the public, bypassing the Federal Reserve, such as sending checks directly to individuals, will bring a relatively high level of inflation.
Rona O'Connell, head of EMEA and Asia market analysis at financial services firm StoneX, said that strong U.S. inflation in April was accompanied by weak manufacturing, employment, and spending, which is not good news and poses a risk of stagflation.