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.
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%.
One side of the debate that has raged since the economy reopened argues Democrats’ latest stimulus is lifting inflation to dangerous levels.
The other camp, which includes the Biden administration and the Federal Reserve, attributes the recent jump in price growth to the economic reopening and views the overshoot as “transitory.” But it was quite a jump, as inflation soared to its fastest rate since 2008 in May.
For all the hemming and hawing over inflation, countering dangerous price growth is relatively simple: Consumers’ spending habits decide whether inflation spirals out of control. After governments reversed lockdown measures and vaccines reached arms, retail sales hit record highs, as reopening turned into a bona fide spending boom.
The problem with this spending boom is that supply has come up short. Bottlenecks throughout the global economy have slowed the production of goods ranging from furniture to ketchup, causing shortages almost everywhere you look and, in turn, massive price increases. And it’s spending on stuff, or durable goods – think cars and appliances rather than food and fuel – that has led broad inflation gauges higher through reopening. Prices within the category rose 3% from April to May alone after soaring 3.5% the month prior.
The American consumer is pretty intelligent, though, as early signs suggest they are shifting their spending patterns, in apparent recognition that a few key items are way out of step in terms of price increases. Instead of caving to higher prices, Americans appear to be holding off on some purchases and giving suppliers some extra time to catch up.
Used car and truck prices were the single largest contributor to the Consumer Price Index in April and May, rising 10% and 7.3%, respectively. A global shortage of semiconductors hobbled auto manufacturers through spring, leaving many to seek out previously owned vehicles.
Yet recent indicators show the price surge slowing sharply in June. The Manheim Used Vehicle Value Index rose just 0.3% in a preliminary June reading, down from the 4.8% jump in May. The meager increase signals used-car inflation could be nearing its peak before reversing course.
Separately, 24% of Americans referenced high vehicle prices when evaluating the autos market in May, according to the University of Michigan’s consumer sentiment survey. That’s the highest reading since 1997.
A similar trend is emerging in the housing market. Sales of both existing and newly built homes slid again in May as a dire housing shortage has sent prices soaring. At the same time, a record-high 48% of consumers cited high prices in their evaluations of the housing market, according to the University of Michigan survey.
The unevenness is “all common sense,” John Cochrane, a senior fellow of the Hoover Institution at Stanford University, wrote in a June 10 blog post.
“Bar and restaurant prices went down in the pandemic, less so TVs and gym equipment, and ‘stuff’ is now really getting hard to find and to produce,” he added.
There’s reason to be optimistic, according to Bank of America economists. Demand is likely to persist well after supply constraints are addressed. Americans spending today will simply pay a “temporary inflation tax” on some goods, and those deferring their demand will drive a jump in activity once price growth cools, the team led by Ethan Harris said.
“While a lot has been made of the temporary inflation pressures, there is much less discussion of the temporary constraint on real activity. However, you can’t have one without the other,” they added.
In other words, it depends on all of us, and our spending habits, to make sure inflation doesn’t spiral out of control, and we are looking pretty responsible about that in the summer of reopening.
“We have a lot of cash and capability and we’re going to be very patient, because I think you have a very good chance inflation will be more than transitory,” Dimon, the longest-serving CEO among the big US banks, said.
He suggested the risk of higher, more persistent inflation is growing. US inflation, or the rise in prices of goods and services, has picked up dramatically compared with last year, when the economy was in lockdown. Disruptions to the global supply chain and a burst of consumer spending have added to the increase. Higher interest rates would help ward off a more damaging pickup in inflation.
“If you look at our balance sheet, we have $500 billion in cash, we’ve actually been effectively stockpiling more and more cash waiting for opportunities to invest at higher rates,” he said. “I do expect to see higher rates and more inflation, and we’re prepared for that.”
While several Fed officials have been resolute in their view that the rise in inflation will ultimately prove transitory, other influential leaders have warned of the consequences of rising prices.
In a 1980 shareholder letter, Warren Buffett described high inflation as a “tax on capital” that dissuades corporate investment. The billionaire investor said the rise in general price levels can hurt more than income tax, and rising costs force companies to spend cash just to maintain their business – regardless of whether they’re generating profits.
JPMorgan, the largest US bank by assets, expects $52.5 billion in net-interest income in 2021, down from its previous expectation of $55 billion, partly due to a decline in credit card balances.
Separately, at Monday’s conference, Dimon said he planned to hold his position at JPMorgan for at least the next two to three years. Without giving an exact time frame, he said: “I intend to stay, which is sanctioned by the board, for a significant amount of time.”
Inflation in the US is handily outpacing that of other advanced economies, and it’s probably thanks to the country’s stellar recovery, JPMorgan economists said.
With vaccines rolling out and lockdown measures slowly being lifted, the global economy is on the mend. Advanced economies lead the pack, benefitting from massive stimulus measures and more efficient vaccine distribution. Within that group, the US is among the best performers. The country’s economic output is expected to grow at the fastest rate since the 1950s, and some banks are already revising their estimates for 2022 growth higher on hopes for an even smoother rebound.
Yet concerns of soaring inflation have offset some reopening optimism. A popular gauge of US price growth rocketed 0.6% month-over-month in May and 5% year-over-year, exceeding estimates and marking the largest one-year leap since 2008. Where the Federal Reserve has said it expects the overshoot to be temporary, supply bottlenecks threaten to accelerate inflation further through the year.
The latest inflation readings are unusually strong, but are likely a byproduct of the US’ outperformance, the JPMorgan team led by Bruce Kasman said in a Friday note. Where the World Bank expects advanced economies to grow 5.4% in 2021, it sees US GDP expanding 6.8% and outpacing peers through the following two years.
The strength of the country’s rebound explains why inflation bounced back so suddenly, the team said.
“Although core inflation is tracking above the pre-pandemic pace elsewhere, the US has been exceptional for a number of reasons,” the JPMorgan economists added.
For one, the country’s service industry was hit particularly hard by the pandemic. Services prices dropped a full 2% at the peak of the downturn, surpassing the damage seen in other advanced economies.
The US also embarked on a far more ambitious stimulus rollout. Congress approved roughly $5 trillion in fiscal support during the health crisis. Much of that aid came in the form of direct payments and bolstered unemployment benefits. Once the country began to reopen, that support drove a demand boom that quickly lifted spending above its pre-pandemic peak. By contrast, spending remained weak in Western Europe, where stimulus wasn’t as large or direct, JPMorgan said.
Trends in the US labor market also contributed to the country’s strong recovery and faster inflation, the team added. Where employers laid off workers en masse at the start of the pandemic, they’re now rushing to rehire and service an unprecedented wave of consumer demand. Job openings soared to a record high in April, but the budding labor shortage also saw quits hit a record and payroll growth slow sharply.
The imbalance between worker supply and employer demand has since driven wages sharply higher as businesses struggle to attract workers. The jumps in labor costs and households’ purchasing power will further lift inflation, the economists said.
That pick-up isn’t to be feared, according to the Federal Reserve. The central bank has said it will let inflation run hot in hopes of driving stronger employment and wage growth through the recovery. President Joe Biden similarly praised the trend in a late-May speech, saying the jump in average pay is a “feature,” not a bug, of the US recovery.
Policymakers will likely recognize the spike in inflation rates but maintain that the economy remains far from the Fed’s “substantial further progress goals,” JPMorgan said. The first post-pandemic rate hike will probably arrive in late-2023, the team added, leaving plenty of time for the Fed’s ultra-easy policy to drive the recovery that JPMorgan is calling “exceptional” forward.
Billionaire investor Paul Tudor Jones told CNBC on Monday he’ll bet big on rising inflation if the Fed remains unconcerned about recent economic data showing soaring consumer prices.
The Federal Reserve’s policy meeting this week could be the most important one of Jerome Powell’s career, Jones said, because there’s been so much data that has challenged the Fed’s current stance that inflation is transitory.
The last two consumer price index readings put inflation well ahead of the Fed’s 2% target, the hedge fund manager said.
“If they treat these numbers – which were material events, they were very material – if they treat them with nonchalance, I think it’s just a green light to bet heavily on every inflation trade,” the founder of Tudor Investment Corporation said.
“If they say, ‘We’re on path, things are good,’ then I would just go all in on the inflation trades. I’d probably buy commodities, buy crypto, buy gold,” he added.
Jones has been bullish on bitcoin as an inflation hedge for over a year. While he has insisted that he’s no bitcoin expert, he sees the cryptocurrency as a portfolio diversifier.
“The only thing I know for certain, I want 5% in gold, 5% in bitcoin, 5% in cash, 5% in commodities. At this point in time I don’t know what I want to do with the other 80% until I see what the Fed is going to do,” said Jones.
Economists are anticipating that the central bank will hold its policy stance steady at the conclusion of the two-day meeting and reaffirm the pace of asset purchases. If the Fed were to roll back its accommodative stance, the market could wobble, Jones said.
“If they course correct, if they say, ‘We’ve got incoming data, we’ve accomplished our mission or we’re on the way very rapidly to accomplishing our mission on employment,’ then you’re going to get a taper tantrum,” he added. “You’re going to get a sell-off in fixed income. You’re going to get a correction in stocks. That doesn’t necessarily mean it’s over.”
Monetary and fiscal policies are leading to “significant inflationary danger,” according to Capital Economics chairman Roger Bootle.
In an interview with Bloomberg on Wednesday, Bootle repeated his concerns about inflation and criticized other economists and market commentators for their view that monetary and fiscal policies aren’t important when it comes to rising costs.
“Money supply doesn’t matter. The stance of policy doesn’t matter. You’ve got all these cost reductions, and you’ve got competition. I find all this terribly funny because there’s been globalization in Venezuela, Zimbabwe, Turkey, and all the other countries that have had quite rapid inflation,” Bootle said.
“When it comes to it, it’s the stance of monetary policy, the buildup of these big-money balances in the hands of households. The stance of fiscal policy. The very low-interest rates. I think this is what really makes this a particularly dangerous thing,” he added.
Bootle went on to say that current inflationary pressures are not on the scale of what was seen in the 1970s, but demographic changes and increased costs due to US-China tensions and climate policies will add to inflationary pressures moving forward.
There has been a heated debate among economists, banks, and analysts about inflation recently. Some argue, as the Federal Reserve does, that inflation is only “transitory” and will settle down once supply chain issues resolve themselves.
Others, like Bootle, argue that a rapid increase in the money supply along with dovish Fed policy could lead to sustained rising costs.
Despite the pandemic coming to an end, the Federal Reserve has pledged to maintain accommodative policies, including low-interest rates and aggressive asset purchases, until “substantial further progress” has been made toward employment goals.
Comments from Cleveland Federal Reserve President Loretta Mester in a CNBC interview on Friday showed the Fed appears to be doubling down on its view that substantial further progress needs to be made before they change policy.
“I view it as a solid employment report…But I would like to see further progress,” Mester said.
Roger Bootle’s new comments come on the back of Deutsche Bank’s recent warning of a global “time bomb” due to rising inflation if the Fed doesn’t act.
“The consequence of delay will be greater disruption of economic and financial activity than would otherwise be the case when the Fed does finally act,” Deutsche’s chief economist, David Folkerts-Landau, and others wrote in a note to clients.
“In turn, this could create a significant recession and set off a chain of financial distress around the world, particularly in emerging markets,” the team added.
When it comes to the inflation debate looming over the US economy, Goldman Sachs is on the side of the Federal Reserve and the Biden administration.
Gauges of nationwide price growth are surging at their fastest rate in more than a decade, sparking concerns of an overheating economy ending the recovery early. Republicans and some moderate Democrats have blamed the Fed’s ultra-easy policy stance and unprecedented fiscal stimulus for the inflation overshoot. The Biden administration and the central bank have instead argued the stronger price growth is temporary and fade starting next year.
Goldman economists led by Jan Hatzius reiterated their stance on the Biden side on Monday, citing the latest jobs numbers as supporting evidence. The US added 559,000 nonfarm payrolls in May, missing the median estimate but still a sharp rebound from the dismal April report. Wages shot higher for a second straight month, signaling inflation was picking up in pay and pricing.
The combination of soaring wages and stronger inflation amplified Republicans’ claims of an overheating economy. Yet both pressures should cool in the coming months, Goldman said. For one, the economy is still down roughly 8 million payrolls, and May’s pace of job creation still places a full recovery more than a year into the future. Labor supply, which has been slowing hiring in recent months, should also “increase dramatically” as virus fears dim and enhanced unemployment insurance lapses. As more Americans return to work, wage growth is expected to slow.
Inflation should also cool on the pricing side, according to the bank. Goldman’s trimmed core Personal Consumption Expenditures (PCE) index – which excludes the 30% largest month-over-month price changes – has only risen 1.6% from the year-ago level. By comparison, standard PCE – among the most popular US inflation gauges – notched a 3.6% year-over-year gain in April. Core PCE strips out volatile food and energy prices and is generally viewed as a more reliable measure of long-term inflation.
The disparity reveals the “unprecedented role of outliers” in driving inflation higher, and such an effect should “have only limited effects on longer-term inflation expectations,” the economists said in a note to clients.
“Ultimately, the biggest question in the overheating debate remains whether US output and employment will rise sharply above potential in the next few years,” the team added. “If the answer is yes, then inflation could indeed climb to undesirable levels on a more permanent basis. But our answer continues to be no.”
The forecasts echo sentiments shared recently by central bank officials. Fed Governor Lael Brainard said last week that, as schools reopen and vaccinations continue, it’s likely that the labor shortage will unravel. Job openings sat at record highs by the end of March, and a matching of such huge demand with bolstered supply should drive “further progress on employment,” she added.
More broadly, Goldman expects GDP growth to slow after peaking in the second quarter and normalize as stimulus support lapses. The massive jobs shortfall makes for “significant slack” in the labor market, the bank said, adding that unemployment-based output should reach its maximum potential in late 2023.
After decades of weaker-than-expected price growth, America has inflation on the brain.
Inflation – or the general rate at which prices climb – has taken center stage as the US economy climbs out of its year-long slump. Economists expect the combination of a swift reopening and trillions of dollars in stimulus will lift prices at their fastest rate in recent history.
For some, forecasts of stronger inflation bring up memories of the 1970s and 1980s, an era sometimes called the Great Inflation, when prices grew at such a furious pace that the Federal Reserve had to lift interest rates to historic highs.
For younger observers, healthy inflation is a long pursued but seldom seen goal. Price growth has trended below the Fed’s 2% target for most of the past quarter-century. People under 40 simply don’t know a world with runaway inflation – or what the beginning of such a world might look like.
But recent economic headlines – gas shortages, troubles in the labor market, and big-government programs – have a distinctly ’70s flair. Just when should Americans know when to be really worried that inflation could be back in a big and problematic way?
Here’s a look at what inflation actually is, why it’s a tricky concept that is a bit of a self-fulfilling prophecy, and how it’s actually unfolding in 2021.
Table of Contents: Masthead Sticky
Why are people worried about inflation?
The basic notion of soaring prices is concerning. Roughly 10 million Americans are still out of work, and millions more were unemployed for at least some of the past year. At a time when many Americans are looking for stable financial footing, people are more worried about inflation than they have been in years.
The way in which prices have been climbing has already made some worried. While the Fed and President Joe Biden’s Council of Economic Advisors have repeatedly said they expect stronger inflation to be only temporary, others are less optimistic.
Former Treasury Secretary Larry Summers, one of the loudest voices raising concerns of rampant price growth, castigated Democrats’ $1.9 trillion stimulus in March as the “least responsible” fiscal policy in 40 years and kindling for an inflation crisis.
“I think there’s about a one-third chance that the Fed and the Treasury will get what they’re hoping for and we’ll get rapid growth that will moderate in a non-inflationary way,” he added.
A return to the inflation seen in the 1970s would be disastrous for the already ailing economy. In that decade, swaths of easy money were initially viewed as a way to combat unemployment, but inflation quickly broke out of its trend and spiraled out of control. The Fed was forced to step in with interest rates as high as 20% to choke off the price growth, and that had its own detrimental effects on the economy, including a deep recession in the early 1980s.
Conservative economists have warned Biden’s $1.9 trillion stimulus package was unnecessary and could spark a similar disaster. Whether price growth stays elevated or trends back to about 2% will tell the tale of whether Biden’s plan was safe or fuel for a 1970s-like crash.
What would healthy inflation look like this year?
The Fed, America’s central bank, has an “inflation target,” which it uses to guide price growth. In a major shift, the central bank replaced its 2% target in August with a goal for inflation that averages 2% over time. This update allows the Fed to pursue inflation above 2% immediately after the crisis as it tries to run the economy hot and drive a stronger recovery.
The Fed’s own projections point to the stronger-but-transitory inflation it expects to see over the next few months. Policymakers expect year-over-year personal consumption expenditures – the Fed’s preferred inflation measure – to reach 2.4% this year before cooling to 2% in 2022, according to a March release.
The Fed’s new inflation target opens the door for a period of economic overheating as the country reopens. It’s this gamble that concerns conservative economists, or “hawks.” After decades of not letting inflation trend above 2%, it’s embarking on an experiment to let the country run hot in hopes of a faster recovery.
Fed Chair Jerome Powell has been less exact with his forecast, but expects inflation to trend above 2% for “some time” before falling in line with the central bank’s long-term goal.
How does inflation look now?
Signs of an inflation pick-up have emerged, which the Fed says it expected and critics say merits caution.
The PCE price index jumped 0.6% in April, marking the strongest one-month jump since 2008. The measure also notched a 3.6% year-over-year gain, though the data is somewhat skewed by last year’s readings. Inflation “doves” say such a big jump is only natural after the pandemic and widespread lockdowns brought price growth to a near crawl.
The core PCE price index, which excludes volatile food and energy prices, rose 0.7% in April and 3.1% on a year-over-year basis. The core measure is the Fed’s preferred gauge of nationwide price growth.
Inflation expectations are also a gauge worth watching. Median US inflation expectations for the next 12 months gained to 3.4% in April from 3.2%, according to the Federal Reserve Bank of New York. Expectations can serve as a kind of self-fulfilling prophecy. When Americans anticipate faster price growth, businesses tend to lift prices and workers in turn demand higher wages. While inflation expectations typically surpass real inflation, they can hint at the direction inflation will trend, and even affect prices and wages in that direction.
Taken together, the gauges show inflation firming, but still far from the peak economists are bracing for. The median estimate for April year-over-year CPI sits at 3.6%, a rate that would be the fastest since 2011.
What can the Fed and the government do about inflation?
Inflation has been half of the Fed’s dual mandate since its inception in 1913. The central bank was tasked by Congress to ensure stable price growth for the US economy. Its main lever for doing so is its benchmark interest rate, which dictates borrowing costs across the country.
When rates are high, Americans are more incentivized to save money. When rates are low, or near zero as they are today, Americans are pushed to borrow and spend. The Fed’s ability to change rates allows it to stimulate economic activity in times of recession or cool spending when the economy is running hot.
The latter is primarily how the Fed dampens strong inflation. By raising interest rates, the central bank weakens the incentive to borrow and spend. That then drags on demand and weakens the rate at which businesses lift prices.
“There was a time when there was a tight connection between unemployment and inflation. That time is long gone,” he said. “We had low unemployment in 2018 and 2019 and the beginning of ’20 without having troubling inflation at all.”
During those years, unemployment and wage growth among low-income households and racial minorities started to fall in line with broader measures. By letting inflation run above its historical average for some time, the Fed aims to foster not just a tighter labor market, but one that’s more inclusive and beneficial for all Americans.
The risk is that higher inflation in pursuit of a more inclusive economy can spark a new crisis as price growth runs out of control.
Historically strong price growth will be with the country into 2022, but Americans still need not worry, Treasury Secretary Janet Yellen said Thursday.
The US economy is in the midst of an inflation conundrum. The relaxing of economic restrictions and stimulus passed by Democrats in March have supercharged the recovery. Yet the resulting bounce in demand and a slew of supply bottlenecks have driven inflation to its highest levels in more than a decade.
The Federal Reserve and the Biden administration have maintained their forecast that, as supply chains heal and the economy settles into a new normal, inflation will fade to healthier levels.
Yellen reiterated the White House’s outlook in a hearing with a House Appropriations subcommittee.
“My judgment right now is the recent inflation we’ve seen is temporary. It’s not something that’s endemic,” the Treasury Secretary told lawmakers during the virtual hearing. “I expect it to last, however, for several more months and to see high annual rates of inflation through the end of this year.”
Republicans, however, have recently gone on the offensive. Members of the party this week pinned accelerated price growth to President Joe Biden’s spending plans and raising concerns around economic overheating.
The Consumer Price Index – a popular measure of broad inflation – surged 0.8% in April from the month prior, the Census Bureau said earlier this month. The index also notched a 4.2% year-over-year gain, the largest since September 2008. The April uptick was primarily fueled by a 10% month-over-month gain for used car prices.
To be sure, year-over-year measures are somewhat skewed by year-ago readings. Inflation turned negative at the start of the pandemic and remained historically weak for months after. Those levels serve as a lower bar to clear for present-day readings.
Yellen also rebuked Republicans’ argument that Biden’s follow-up spending proposals will further accelerate inflation. Historically low interest rates mean the government can spend now with little immediate pressure to repay its debt, the former Fed chair said. The US will need to reach a sustainable path for spending after the recovery, but debt concerns shouldn’t keep the government from spending on infrastructure and other investments, she added.
Americans will get their next glimpse at nationwide inflation when the government publishes Personal Consumption Expenditures data Friday morning. Economists surveyed by Bloomberg expect core PCE to jump 0.6% month-over-month in April.