Billionaire investor Howard Marks says no one can know what will happen with inflation – so there’s no need to make big portfolio changes

howard marks
  • Howard Marks said he believes it’s not possible to predict whether high inflation will persist.
  • Investors don’t need to alter portfolios in response to macro forecasts, the Oaktree co-chief said in the Thursday memo.
  • The billionaire investor thinks current asset prices are fair, given interest rates are at their lowest level ever.
  • See more stories on Insider’s business page.

Billionaire investor Howard Marks has underlined his conviction that it’s not possible to know where inflation is headed, and said investors shouldn’t upend their portfolios in response to the current stream of macro forecasts.

Investors have a great deal riding on the prospects for inflation, since a higher level leads to higher interest rates and lower asset values, the Oaktree Capital Management co-chairman said in his latest memo, published Thursday.

But as for whether the present high level of inflation is permanent or transitory, as the Federal Reserve believes, “it’s impossible to know the answer,” he said in the note on macro thinking.

“I consider anything anyone says today about inflation in the coming years to be Lipsitch’s ‘opinion or speculation’… or, as I’d say, ‘guesswork,'” he said.

US consumer prices rose 0.9% in June, the fastest rate since the 1% increase in April 2008.

Marks, whose company is the largest investor in distressed securities across the world, doesn’t think the high asset prices in today’s market are absurd, given that interest rates are at their lowest in history.

“While the possibility of rising rates (and thus lower asset prices) troubles us all, I don’t think it can be said that today’s asset prices are irrational relative to rates,” he said.

Marks said investors should give less weight to predictions around inflation, as little is known about what drives it or dampens it. That said, he acknowledged that “inflation and its impact on interest rates constitute the most important wildcards” for the market right now.

But since no one can confidently predict whether the economy is entering an inflationary era, there isn’t much sense in significantly reducing market exposure, the Oaktree co-chief argued.

“I consider it reasonable for investors to give a nod to the possibility of higher inflation, but not to significantly invert asset allocations in response to macro expectations that may or may not prove accurate,” Marks concluded.

For investors who do feel strongly about the risk of inflation, Marks suggested considering three areas – debt investments with floating rates, investing in businesses that can absorb cost increases (like some landlords), and deals where profits have the potential to rise faster than costs.

The billionaire also noted that investors should remember to stay fully invested for the long-run, “unless the evidence to the contrary is absolutely compelling.”

Retail investors believe rising inflation poses the biggest threat to their portfolios, according to a recent survey conducted by brokerage firm eToro. Investors in the US, Poland, and Germany ranked it as a more prominent threat than those in the UK, the survey found.

Data showed that investors have moved to protect their portfolios by hedging with traditional picks such as real estate. Most portfolios were found to be made up of 62% in equities, 39% in bonds, and 28% in cash, eToro said.

Read More: Chinese stocks are tanking. Here’s why their financial meltdown could get way, way worse

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Rising wages are doing more good than bad, Fed’s Powell says

GettyImages 1165380762
  • Rising wages aren’t contributing to decade-high inflation, Fed Chair Jerome Powell said Wednesday.
  • Today’s trend is different and healthier than the wage-price spiral of the 1970s, he added.
  • The comments echo remarks from President Joe Biden, who’s repeatedly praised the jump in worker pay.
  • See more stories on Insider’s business page.

Wages are rising, but not to a degree that should concern economists, Federal Reserve Chair Jerome Powell said Wednesday.

The months-long labor shortage has prompted some businesses to raise wages as they scramble to rehire. Average hourly earnings rose at an unusually fast pace through spring, and healthy job creation in sectors with the largest pay bumps suggests the raises are working.

Yet the increases have raised some concerns around how higher pay might boost inflation. Price growth hit the fastest pace since April 2008 last month, reflecting dire supply shortages and overwhelming demand in the US economy. Higher pay could further accelerate inflation by lifting consumer spending and leading companies to charge more.

Such a process can occur, but it’s not what the economy is experiencing today, Powell said in a press conference following the Federal Open Market Committee’s July meeting. The US faced a wage-price spiral in the Great Inflation of the 1970s as companies used higher prices to offset rising labor costs. Since wages have steadily risen alongside broader price growth, the current trend is more healthy than concerning, the Fed chair said.

“Wages moving across the spectrum consistent with inflation and productivity is a good thing,” he added.

The FOMC elected to hold interest rates near zero and maintain asset purchases of at least $120 billion per month. Powell hinted that participants discussed plans to taper the purchases, but gave little indication of when action would take place.

To be sure, the jump in wages is easily outpaced by the inflation uptick. On net, average pay has declined due to broadly higher prices. Minimum wage workers who haven’t benefitted from the jump are the poorest they’ve been in decades.

Economists also expect the leap in wages to be a one-off. It’s unlikely businesses will factor higher inflation into their wage-setting plans for next year, Gregory Daco, chief US economist at Oxford Economics, said in June. The increase is more a “one-time releveling of low wages” than a permanent shift in workers’ bargaining power, he added.

That hasn’t stopped policymakers from cheering the gains so far. Labor Secretary Marty Walsh said earlier in July that the administration isn’t worried at all about higher pay adding to inflation.

“I think steady wage growth is good for workers. The one thing that we are not concerned about is … inflation,” Walsh told Insider. “We’re still in transition, so we’re not concerned about that. So I think anytime we can push for higher wages – and the president’s been very vocal on this – that’s a good thing for people.”

President Joe Biden made similar remarks in June, saying employers should simply “pay [workers] more!” if they were struggling with the labor shortage. The pay hikes are a result of employees having a stronger bargaining chip now, he added.

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The adoption of central bank digital currencies is ‘inevitable’ – though the US still has 2 problems to overcome, says Bank of America

The Eccles Building, location of the Board of Governors of the Federal Reserve System and of the Federal Open Market Committee, June 2, 2016 in Washington, DC.
The Eccles Building

  • The adoption of central bank digital currencies is “inevitable”, according to Bank of America.
  • However, the US needs to solve two problems: how to include unbanked Americans and dealing with retail transfers across borders.
  • “Central banks have the power and the will to prevent a very bad outcome,” the analysts said.
  • See more stories on Insider’s business page.

The adoption of central bank digital currencies is “inevitable” due to numerous apparent advantages, according to Bank of America, though the US still needs to overcome several challenges before there can be an effective rollout of a digital dollar.

Among the many upsides of well-designed CBDCs, according to economist Ethan Harris and currency strategist Athanasios Vamvakidisthere, one stands out: their almost instantaneous transactions at minimal costs no matter where in the world.

This was highlighted during the pandemic when stimulus payments went out to the bank accounts of millions of struggling Americans. A transfer via check would have been too slow while one via credit card would have been too costly.

Still, the US must overcome two problems before a CBDC can be successfully rolled out, according BofA analysts.

First, it must figure out how to include around 5% of American households that do not have bank accounts and the roughly 21% that do not have credit or charge cards. Once the US has its CBDC, these individuals could be locked out of participating.

Second, it must work out if “digital wallets” are indeed the answer to expensive retail transfers across borders, especially with 3% of the adult population in the US not owning cell phones and 15% not owning smartphones.

Still, central banks will likely be moving along two tracks going forward, the analysts said, which are improving the current payment system and developing new methods of payment.

“Central banks have the power and the will to prevent a very bad outcome,” the analysts said. “They are not going to throw the baby out with the bathwater, but will retain control of the payments system and minimize the disruption to the flow of credit.”

The analysts also said they are concerned that if CBDCs for major currencies are available internationally, these could “erode the monetary sovereignty of smaller countries.”

After all, CBDCs, particularly one backed by the US, in some ways are superior to bank accounts as a store of value, particularly during times of crisis, they said.

CBDC is a type of central bank liability – similar to the US dollar – issued in digital form, which could be used by the general public. It will have the full backing of the central bank although could be managed by designated private financial institutions.

Around 56 central banks are developing or considering digital currencies, according to the Bank for International Settlements, with China leading the race as it gradually rolls out its e-RMB.

The Fed for its part in May revealed that it has taken further steps in exploring a digital currency and will be releasing a discussion paper this summer outlining its thinking on digital payments.

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There is a fundamental misunderstanding of inflation and its spread throughout sectors of the economy proves it is not isolated or transitory, Mohamed El-Erian says

Mohamed El-Erian, Chief Economic Adviser of Allianz appears on a segment of "Mornings With Maria" with Maria Bartiromo on the FOX Business Network on April 29, 2016 in New York City.
Mohamed El-Erian.

  • Mohamed El-Erian said there is a fundamental misunderstanding of inflation because few people have lived through it.
  • “I always laugh when people say, oh, it’s isolated, it’s transitory,” El-Erian told CNBC on Monday.
  • He also disagreed with the Federal Reserve’s view that inflation is transitory.
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Economist Mohamed El-Erian in an interview Monday took aim at assessments of inflation that describe rising prices as “transitory,” stating that there is a fundamental misunderstanding of what inflation is and how it is already spreading throughout the economy.

“I always laugh when people say, oh, it’s isolated, it’s transitory,” Allianz’s chief economic adviser told CNBC. “I think there’s a fundamental misunderstanding about inflation today because … most people haven’t lived through it for a long time and certainly most traders on Wall Street haven’t traded through it.”

El-Erian pointed to the surge in used cars prices to their highest in more than 60 years, which has been followed by an increase in prices of new cars, and a rise in the price of rental cars. This, he said, shows inflation is not contained.

“There is a logic to these inflation chains. They take time, and most people, unfortunately, haven’t seen them,” El-Erian told CNBC. “So they think everything’s isolated. Actually, it’s not. It’s interconnected.”

El-Erian, who is also the president of Queens’ College, Cambridge University, countered the longstanding narrative of the Federal Reserve that inflationary pressures are temporary.

The central bank slashed rates to historic lows at the start of the pandemic to stimulate economic activity and has signaled its intention of keeping interest rates unchanged until 2023.

Fed Chair Jerome Powell has repeatedly said that inflation will pass as the economy settles into a new normal. However, updated rate-hike projections six weeks ago signal that the central bank could see inflation posing a larger risk than initially thought. Powell is expected to issue a new statement this week, on July 28 at 2 p.m. ET.

“I don’t expect fireworks, El-Erian said. “The Fed has adopted a new framework that is backward-looking. They’re no longer forecast-based; they’re outcome-based.”

El-Erian also maintained that inflation will continue to run higher.

“The big question for me is not whether inflation will be higher than what the Fed expects,” he told CNBC. “It is whether the system is wired loosely enough to adjust to that – and that’s what we going to learn.”

The Consumer Price Index rose 0.9% between May and June, much more than the consensus estimate of 0.5%.

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Billionaire investor Leon Cooperman rules out an imminent market crash, trumpets ‘big tech’ stocks, and sounds the national-debt alarm in a new interview. Here are the 10 best quotes

Leon Cooperman holding his glasses up to his right temple.
Leon Cooperman.

  • Leon Cooperman dismissed fears of an imminent market downturn.
  • The billionaire investor defended “big tech” valuations and called for fiscal discipline.
  • Cooperman is wary of meme stocks and sees minimal value in owning government bonds.
  • See more stories on Insider’s business page.

Leon Cooperman ruled out an imminent market crash, warned that stimulus efforts are ballooning the national debt to dangerous levels, and emphasized the appeal of “big tech” stocks in a CNBC interview this week.

The billionaire investor, who converted his Omega Advisors hedge fund into a family office in 2018, also dismissed government bonds as virtually worthless and some meme stocks as ridiculously overvalued.

Here are Cooperman’s 10 best quotes from the interview, lightly edited and condensed for clarity:

1. “The conditions for a bear market are just not present. Bear markets don’t materialize out of immaculate conception.” – Cooperman pointed to recession fears and rising inflation as potential drivers of a downturn.

2. “Inflation becomes a problem when the central bank begins to fight inflation, because fighting inflation is tantamount to curbing growth.”

3. “We’ve already injected into the economy $1 trillion of stimulus in excess of wages lost. The central bank and the fiscal authorities are focused exclusively on employment, they’re not worried about the debt creation. I worry about it because debt’s growing too rapidly, it’s not sustainable. We are heading for a fiscal crisis one of these days. “

4. “The most dangerous instrument today is buying a long-term US government bond. Basically you’re getting your capital confiscated. I could buy a lot of stocks that have a much better valuation profile than the US government bond.” – noting that bonds are almost worthless when yields are low, 40% of any profit goes toward taxes, and inflation is trending at 3% or higher.

5. “There’s nothing overvalued in today’s interest-rate environment except the bonds. Look at Google, Facebook, Microsoft, Amazon – if you believe the economy’s gonna grow and interest rates are gonna stay where they are, they’re not overvalued.” – Cooperman’s family office owns shares of those four “big tech” companies.

6. “I’m a stock jockey, I like what I own. I’m having no trouble finding things that I wanna own. I have an eye on the exit because monetary policy and fiscal policy have pulled demand forward and this game and this party, when it ends, is not gonna end well.”

7. “These algorithms know nothing about value, they know everything about price. I try and bring some sanity to the picture.” – blaming increased volatility on quantitative trading and changes to market structures.

8. “It’ll be Fed speak, it’ll be inflation, it would be the overall performance of the economy, it would be gold and bitcoin which represent speculative fever, it would be the stock market itself. I watch everything like a hawk. Most importantly, I watch what I own.” – listing some of the factors that might lead him to cash out his holdings.

9. “Six or eight months from now, we’ll start to see liquidity coming out of the market and I’ll have a different view of the market.”

10. “I stay away from the Robinhood stocks. I don’t get the valuations, they’re crazy. Some of these Robinhood stocks, some of these 100x revenue stocks with no earnings, that’s where the correction has been greatest. And when I look at them, they still look overpriced.”

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Stablecoins should be regulated like banks and central bank digital currencies could tame these ‘wildcat’ crypto tokens, according to research from the Fed and Yale

US dollar
US dollar

  • Researchers at the Federal Reserve and Yale University have released a report titled ‘Taming the Wildcat Stablecoins.’
  • The report suggested stablecoins should be regulated like banks, and promoted CBDCs.
  • The report preceded the Treasury’s working group meeting Monday on stablecoins.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Cryptocurrencies that are pegged to a stable asset – known as “stablecoins” – should be regulated as strictly as commercial banks and those that are not should be wiped out to prevent instability in the global payments system, according to a report from researchers at the Federal Reserve and Yale University.

The report, titled “Taming the wildcat stablecoins”, was released over the weekend ahead of a meeting of a Treasury Department working group on digital assets on Monday. In it, researchers suggested stablecoins should be issued by insured banks and backed by government bonds.

But anyone can issue a stablecoin and it is these privately produced tokens that have regulators worried.

Tether, for example, is the world’s third-biggest cryptocurrency by market value. It’s designed to be pegged to the US dollar and backed by assets such as dollars and Treasury bills. But regulators in New York recently banned it after an investigation found it had overstated its US dollar backing.

In May, the Federal Reserve’s Lael Brainard raised concerns stablecoins could default and destabilize the financial system.

“Policymakers have a couple of ways to address this development, and they better get going,” the report said.

The report’s authors said the federal government could either “convert stablecoins into the equivalent of public money by (a) bringing stablecoins within the insured bank regulatory perimeter or (b) requiring stablecoins to be backed one-for-one with Treasuries or reserves at the central bank; or (2) introduce a central bank digital currency and tax private money out of existence.”

The US is not the only government that feels the need to cool down the risks that stablecoins present central banks.

“Some commercial organizations’ so-called stablecoins, especially global stablecoins, may bring risks and challenges to the international monetary system, and payments and settlement system etc,” Fan Yifei, a deputy governor of the People’s Bank of China, told CNBC earlier this month.

The Treasury Department called Monday’s meeting to address some of these issues.

“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Treasury Secretary Janet Yellen said in a statement Friday. “In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities.”

Cryptocurrency usage has grown across the world, and most major central banks are now considering issuing their own digital currencies.

The report suggested central bank digital currencies (CBDCs) could be issued either as a deposit account, or as a digital coin, with the latter being the preferred option, as it could operate alongside traditional banking tools like cards. The first option would mean central banks will have to open accounts and administer payments for users.

“The introduction of a central bank digital currency allows the government to maintain monetary sovereignty,” the report said.

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Global stocks waver after Fed’s Powell says surging US inflation will fade

Traders work on the floor of The New York Stock Exchange
  • US stocks looked set to open lower on Thursday as investors digested Jerome Powell’s comments.
  • The Fed chair presented a dovish testimony to Congress and suggested inflationary pressure won’t last.
  • China’s second-quarter GDP rose 7.9%, slightly missing economist forecasts for an 8% increase.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Global stocks whipsawed on Thursday after Fed Chairman Jerome Powell said he sees much of the inflationary pressures as transitory, and indicated the shift to tightening monetary policy won’t take place anytime soon.

Futures on the Dow Jones, S&P 500, and Nasdaq fell 0.2%, suggesting a lower start to trading later in the day.

In his congressional testimony on Wednesday, Powell said the recent inflation data so far has been higher than expected or hoped for, but is linked to a “small group of goods and services directly tied to the reopening.”

He cited the price of lumber, now trading at 8-month lows after rallying 275% since May 2020, as an example of many of the transitory factors.

US 10-year Treasury yields were last down 3.5 basis points at 1.314%, with lower real rates and inflation expectations contributing to the decline, Deutsche Bank analysts said.

Elsewhere in Europe, equities traded lower as investors digested Powell’s comments and awaited more earnings releases.

The UK unemployment rate rose to 4.8% in the three months to May, from 4.7% in the three months to April, but was down from 5% in the previous quarter. UK markets showed little reaction to the data.

But COVID-sensitive stocks are one area that continue to struggle as investors assess the global spread of the delta variant, with the STOXX 600 travel and leisure index falling a further 0.9% for a third consecutive monthly decline.

London’s FTSE 100 was about flat, the Euro Stoxx 50 fell 0.3%, and Frankfurt’s DAX fell 0.5%.

Asian markets were mostly higher after China posted growth of 7.9% in the second quarter, slightly missing economists’ expectations for an 8% increase. But other data for June surprised to the upside, with retail sales coming in at a year-on-year growth rate of 12.1%, compared to the expected 10.8%.

The Shanghai Composite rose 1%, Hong Kong’s Hang Seng rose 0.8%, while Tokyo’s Nikkei fell 1%.

Oil prices fell after the United Arab Emirates and Saudi Arabia reached a compromise on production, with the former said to have secured a higher baseline for its crude output. The threat of weaker OPEC+ cohesion and higher than anticipated production will cap oil price gains for now, Jeffrey Halley a senior market analyst at OANDA, said.

Brent crude fell 1.47%, to $73.66 a barrel, and West Texas Intermediate fell 1.7%, to $71.84 a barrel.

Read More: BANK OF AMERICA: Buy these 22 stocks set to completely crush earnings expectations as volatility around reports creates a stock-picker’s paradise

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US stocks trade mixed as Powell reiterates in testimony that inflation will pass

Stock Market Bubble
A trader blows bubble gum during the opening bell at the New York Stock Exchange (NYSE) on August 1, 2019, in New York City.

US stocks rallied on Wednesday after Federal Reserve Chairman Jerome Powell reiterated that inflation will pass.

The benchmark S&P 500 index scaled close to all-time highs, while the Dow Jones Industrial Average also inched up. The Nasdaq composite fell slightly.

The yield on the US 10-year Treasury slipped 6.1 basis points to 1.353%.

The Fed chief said the US economic recovery still has further to go before the central bank considers tapering its asset purchases, according to prepared remarks ahead of his House Financial Services Committee testimony.

Powell said the US job market “is still a ways off” from the progress the Fed hopes to achieve, suggesting it would stick to its highly accommodative monetary policy even in the face of data showing inflation is on the rise.

Powell on Wednesday presented the central bank’s semiannual monetary policy report to Congress and took questions from lawmakers.

Here’s where US indexes stood at the 4 p.m. close on Wednesday:

Stocks have scaled to record highs in the past weeks as economic data continuously point to a strong recovery on top of robust corporate earnings.

Bank earnings continued Wednesday with Bank of America reporting revenue that fell short of Wall Street’s forecasts but blew past net income predictions.

Citigroup meanwhile posted earnings that came in above analyst estimates as the banking giant’s stock trading offset a miss in fixed income.

Big movers include Oatly, which fell 6.1% to an all-time low of $19.40 after short seller Spruce Point Capital Management accused the oat milk company of misleading investors on multiple fronts and overstating its revenue.

Peloton shares also dipped by 5.4% to $113.33 following a rating downgrade to neutral at Wedbush.

In cryptocurrencies, bitcoin, dogecoin, and cardano’s ada token hit their lowest price in three weeks before recovering slightly. Ether touched a two-week low.

Powell in his testimony challenged the need for cryptocurrencies if the central bank were to issue its own digital currency.

“You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies, if you had a digital US currency,” the Fed chief said.

Oil prices slid after Saudi Arabia and the United Arab Emirates reached a compromise allowing the latter to boost its output, Reuters reported.

West Texas Intermediate crude slipped 3.20%, to $72.84 oil per barrel. Brent crude, oil’s international benchmark, fell 2.56%, to $74.53 barrel.

Gold edged higher for the second straight session, rising 1.08% to $1,825.56 per ounce.

Lumber continued its five-day slide to at $642 per thousand board feet.

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Inflation is pretty high right now, but it probably won’t be a huge problem in the long term

used car lot
Used cars were responsible for a third of the inflation spike between May and June.

  • Consumer prices rose 0.9% between May and June, a 13-year high.
  • But a large part of the increase came from items affected by the pandemic and reopening.
  • As the economy returns to normal, these prices should stabilize, keeping inflation in check.
  • See more stories on Insider’s business page.

The much-expected wave of inflation amid an unprecedented post-pandemic economic reopening is here, but how long it will stay with us is an open question.

The Bureau of Labor Statistics reported Tuesday that the Consumer Price Index, which measures changes in the prices of a basket of common goods and services, rose 0.9% between May and June. That was far higher than Bloomberg’s consensus economic forecasts of 0.5%, and according to BLS, was the largest one-month jump in prices since June 2008.

The price index was 5.4% higher than it was in June 2020, marking another record high for recent years:

Too much inflation for too long can cause a lot of trouble for an economy: Consumers are able to buy less stuff if goods and services are too expensive, and savers and investors can see their real returns plummet if the interest rates they receive can’t keep up with rising prices.

But the current round of price increases may be more benign, and could very well abate within the next several months.

A lot of recent inflation is from the weirdness of a post-pandemic economic reopening

Much of the inflation seen in recent months comes from the collision between supply chains still recovering from the disruption of the pandemic and a surge of pent-up demand as vaccination rates increase and lockdowns and health restrictions lift.

As Federal Reserve Chair Jerome Powell pointed out in testimony to Congress on Wednesday afternoon, goods and services that have been especially affected by the pandemic and reopening have seen the biggest price increases.

Powell said, “the incoming inflation data have been higher than expected. But they’re actually still consistent with what we’ve been talking about, that the very high inflation readings are coming from a small group of goods and services that are directly tied to the reopening of the economy. It’s new cars, used cars, rental cars, hotel rooms, airplane tickets – things we understand.”

Auto manufacturers have been facing a shortage of computer chips, slowing production of new cars. Meanwhile, demand for used cars has skyrocketed, leading to used cars and trucks seeing a historical record-high 10.5% price increase between May and June alone. BLS noted that about a third of the total CPI increase between May and June came from used cars and trucks.

Pent-up demand for travel after a year of pandemic lockdowns has led to big price increases in travel-related services like airline tickets, rental cars, and hotels, as noted by Powell.

The good news is that as the economy returns to normal, these markets should settle down somewhat. According to Cox Automotive, wholesale car prices declined from May to June, which should lead to retail prices tapering off sooner rather than later. And as in-demand businesses like airlines and hotels continue to hire or rehire workers and rebuild capacity to meet heightened demand, prices should stabilize there as well.

Of course, there are still risks that inflation could go longer and higher than expected. Housing prices have surged this year, and if that continues it could lead to more permanent cost increases. Supply chains and labor markets still need to stabilize, and if they don’t, prices could keep increasing.

Still, policymakers and markets seem to be not overly worried about longer-term inflation. Powell wrote in prepared remarks before Wednesday’s testimony that the Fed expects that inflation “will likely remain elevated in coming months before moderating.” A bond-market measure that roughly shows what investors expect inflation to look like in five years is a bit higher than before the pandemic, but far from levels that would suggest sustained high inflation.

While the future course of inflation is still an open question, there’s a good chance that the pressure on Americans’ wallets should subside in the next few months.

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The Fed could start tapering bond purchases this year, San Francisco Fed President Mary Daly says

Mary Daly Federal Reserve San Francisco
Mary Daly, president of the San Francisco Federal Reserve.

  • The Federal Reserve could start slowing down its asset purchases in 2021, San Francisco Fed President Mary Daly told CNBC on Tuesday.
  • ‘It is appropriate to start talking about tapering,’ in light of recovery in the US economy, Daly said.
  • Daly said the Fed could start curbing purchases later this year or in early 2022.
  • See more stories on Insider’s business page.

The Federal Reserve may begin slowing down asset purchases beginning this year as the world’s largest economy continues to strengthen following the recessionary blow suffered during the coronavirus pandemic, San Francisco Fed President Mary Daly said Tuesday on CNBC.

The central bank has been buying $80 billion worth of Treasury securities and $40 billion in mortgage-backed securities since June 2020 in an effort to help the economy recover from COVID-19 crisis.

“It is appropriate to start talking about tapering asset purchases, taking some of the accommodation that we have been providing to the economy down,” Daly told CNBC in an interview.

“We’ll still be in a very accommodative position with a low funds rate, but we don’t need all the tools we see the economy get its own footing,” she said. Daly didn’t pinpoint an exact timeline but said purchases could be curtailed in late 2021 or early in 2022.

Economic recovery along with a surge in US inflation – and to what extent that it’s transitory – has prompted debate in markets over when the Fed will start pulling back on its asset purchases of $120 billion per month.

On Tuesday, government data showed consumer prices rose 0.9% between May and June, much hotter than a 0.5% rate expected by economists in a Bloomberg survey. The CPI climbed to 5.4% in June from the year-earlier period, the highest rate since August 2008.

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