Strategist: Fed officials seem to have \’no idea\’ about U.S. inflation

Julian Howard, investment director at GAM Multi-Asset Solutions, said Fed officials seemed to have \”no idea\” of U.S. inflation.

Julian Howard, investment director at GAM Multi-Asset Solutions, said Fed officials seemed to have \”no idea\” of U.S. inflation.
Policymakers in recent weeks have urged patience for a rate cut, arguing that inflation has fallen less than expected and remains too sticky for the Fed to continue pursuing easy monetary policy.
Howard said on Wednesday (22nd): \”I think the message this sends is: they have no concept of the status quo.
\”Federal Reserve Governor Waller said on Tuesday (21st) that he would need to see further data evidence that inflation is softening before supporting a rate cut.
\”Without significant labor market weakness I would need to see a few more months of good inflation data before I feel comfortable supporting an accommodative monetary policy stance,\” he said.
Waller\’s comments were echoed by other Fed officials, including Boston Fed President Collins.
“I think the complexity of the data is going to take longer than I previously thought,” she noted.
\”We are in a period where patience is very important.
But Howard said Fed officials have yet to send a clear message about their expectations or explain why inflation remains high. \”Inflation is notoriously difficult to predict; I don\’t think they know what\’s going on right now.\”
\”He emphasized: \”To be honest, this will have credibility issues.
Howard said policymakers initially said inflation would be subdued when they started raising interest rates and explained that inflation then spiked \”and now policymakers think inflation is falling but not fast enough.\”
\”Data released earlier this month showed that the consumer price index (CPI) in April increased by 3.4% year-on-year, a slight decrease from the 3.5% figure in March. It was far lower than the highest inflation cycle record of 9.1% in June 2022, but it was still higher than the Fed\’s 2% target.
\”Inflation did start to come down but then it seemed to be stuck at around 3.5 per cent,\” Howard said. \”Everyone is trying to find an explanation for why inflation is stuck at 3.5 per cent and I think that\’s the challenge.
He added that the stock market appeared to be dealing with rising inflation levels and had adjusted its rate cut expectations, with the number of rate cuts now expected to be much lower than at the beginning of the year.
Howard attributed the lackluster market reaction to changes in large-cap stocks.
He explained that these companies currently have higher cash levels and can make relatively risk-free investments such as Treasury bills.
\”They have become structures at the top of the market that are immune to any shock,\” he said.
\”If interest rates come down, that\’s a good thing for income.\”
It doesn\’t matter if interest rates go up, or don\’t go down as expected because they have high cash levels; meaning they can make this huge amount of money every year without fear of risk.

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