Source: Wall Street
Author: Zhou Xiaowen
Analysts at Deutsche Bank believe that policymakers are likely to lose control of inflation.
Although the Fed expects inflation to fall, analysts at Deutsche Bank point out that current efforts to slow inflation may not work. Earlier this year, Deutsche Bank was the first Wall Street bank to predict a recession in the US economy.
On Wednesday, Deutsche Bank macro strategist Tim Wessel said in a telephone interview that price increases may not fall as sharply as market Fed policy makers think:
"if you look back at your expectations over the past 18 months, you will find that professional forecasters, markets and the Fed mistakenly believe that the economy will not go down. So I have reason to thinkEveryone underestimated the possibility that inflation would continue to rise.”
Also supporting the idea is Rob Daly of Glenmede Investment Management in Philadelphia, who warns that inflation may prove unaffected by Fed interest rate hikes in the second half of the year.
If that happens, financial markets could be at a disadvantage, and investors and traders could experience a new round of turmoil similar to that in the first half of the year, and some believe the Fed may be seen as losing control of inflation. and the risk is growing.
For most of the past year, inflation derivatives traders have almost accurately predicted the pace of inflation. Now they expect the US CPI index to rise from a near 41-year high of 8.6 per cent in May, but below 9 per cent, for about four months this year.
In its latest forecast released last month, the Fed expects personal consumption spending inflation data to fall from 2022 to 2024. Professional forecasters also expect inflation to moderate.
But John Silvia, a former chief economist at Wells Fargo Securities, says inflation will certainly not slow as fast as the market and the Fed had hopedBecause prices are sticky, and prices continue to rise faster than people discount:
"either the market and the Fed accept higher inflation, or policy makers really pursue higher interest rates to fight inflation. Either way, it's bad news for the economy. "
"if the question is whether a hard landing is certain-meaning two or three quarters of negative real economic growth and higher inflation and unemployment-for me, the answer is yes."
Wessel believes that for now, the Fed may "take all necessary measures to keep inflation expectations from getting completely out of control and eventually win the battle, which is just a matter of how much pain it has to endure".
"to be fair, I don't want to rule out the possibility that policy makers may lose control of inflation."
Earlier, Federal Reserve Chairman Powell admitted that there was no guarantee that policy makers would allow the US economy to make a soft landing.
Data released on Wednesday showed that real US GDP in the first quarter was revised down to-1.6 per cent from an annualised quarter-on-quarter.
Edit / Jeffy