Inflation Seen Persisting Above Fed Target as Markets Fuel Economic Rebound
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Inflation swaps suggest headline CPI will rise to 3.2% in April and remain at 3% in May, sticking around longer than expected.
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Financial conditions have eased significantly, allowing inflation and economic growth to reaccelerate over the summer.
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The bond market is willing to take on extra risk without demanding adequate compensation, possibly due to supply issues or rate cut expectations.
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Five-year breakeven inflation rates refuse to fall meaningfully, indicating policy may not be tight enough to bring inflation down.
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As long as spreads stay narrow and stocks remain buoyant, markets will provide conditions for inflation to persist above the Fed's 2% target.