Daily Outlook: Yellen predicts that U.S. inflation will continue to be high until mid-2022

Fed Chairman Powell hinted at rising inflation risks and reiterated that the timing of raising interest rates is not yet ripe:

Fed Chairman Powell’s concerns about continued high inflation in his latest speech have increased. He made it clear that he will soon begin to reduce the scale of bond purchases, but he will remain patient in raising interest rates. Powell said at an online event hosted by the Central Bank of South Africa on Friday that “the supply bottleneck may last longer and stimulate inflation. This is obviously a risk now”. “I want to say that our policy has been fully prepared for a series of possible outcomes,” he said. “I do think it is time to reduce the size, but it is too early to raise interest rates.”

Yellen predicts that U.S. inflation will continue to be high until mid-2022:

U.S. Treasury Secretary Yellen expects that price increases will remain high in the first half of 2022, but she refutes criticism that U.S. inflation is at risk of getting out of control. Yellen stated on CNN’s “State of the Union” program on Sunday that inflation is expected to slow in the second half of the year as supply bottlenecks, the tight labor market in the United States and other factors triggered by the new crown epidemic improve. She said that the current situation reflects “temporary” pain. “I don’t think we will lose control of inflation,” Yellen also said, rebutting the criticism of former Treasury Secretary Summers and others that the Fed may cause inflation to get out of control.

Powell’s speech triggered a change in U.S. debt, and the 5–30-year yield gap approached the lowest in 18 months:

After Fed Chairman Powell said that he would pay close attention to inflation and make corresponding adjustments in due course, the yield of US Treasury bonds with a maturity of more than two years fell, and market inflation expectations fell from a multi-year high. The yield on the 2-year Treasury bond, which is closely related to the Fed’s policy, once rose to 0.488%, the highest level since March 2020, indicating that the market expects the Fed to raise interest rates next year is more likely. As long-term Treasury yields fell, the difference between 5- and 30-year Treasury yields fell to about 85 basis points, only one basis point from the lowest level since April 2020.

In October, the service industry in the United States recorded the fastest growth in three months, and the manufacturing industry slowed down due to supply issues:

Business activity in the US service industry recorded the largest growth in three months, and the manufacturing sector slowed down due to supply and labor shortages. IHS Markit announced on Friday that the initial value of the IHS Markit Service Industry Purchasing Managers Index (PMI) rose to 58.2 from 54.9 a month ago. The manufacturing PMI fell to a seven-month low of 59.2. A reading above 50 indicates the expansion of the service industry.

The U.S. budget deficit for fiscal year 2021 is $2.77 trillion, the second highest on record:

The United States announced that its fiscal year 2021 budget deficit will be the second-highest on record, and large-scale anti-epidemic relief expenditures have kept the federal government huge debt demand. According to a report released by the US Treasury Department on Friday, the fiscal year deficit as of the end of September was US$2.77 trillion, compared with US$3.1 trillion in the same period last year. Secretary of the Treasury Yellen and White House Acting Budget Director Shalanda Young said in a statement that this year’s economic recovery in the United States will help reduce the budget deficit. The annual deficit is $897 billion less than the previous government budget estimate.

The Bank of Russia raised interest rates for the sixth time in a row, and the rate of increase exceeded most people’s expectations:

The Bank of Russia raised interest rates the most since July, which surprised most analysts. The central bank raised its benchmark interest rate by 75 basis points on Friday to 7.5%, marking the sixth consecutive rate hike. Only one of the 44 economists surveyed by Bloomberg made this prediction, and the others expected a rate hike of 25 or 50 basis points.

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