The US May CPI rose 5% year-over-year, higher than the expected 4.7% and the previous value of 4.2%. In April, the US CPI increased by 4.2% year-over-year, surpassing market expectations significantly and reaching a new high since September 2008. The data release heightened market concerns about price issues. Against this backdrop, the US dollar index and Treasury yields experienced significant volatility.
The current rise in US inflationary pressure has been driven by a series of factors, including fiscal and monetary stimulus policies implemented by the Biden administration, gradual price increases as vaccination efforts progress and the service sector reopens, among others. At the same time, supply chain bottlenecks continue to drive up production costs. Most Fed officials believe that as supply-demand imbalances across sectors gradually ease, the inflation rate will fall later this year.
The current divergence between the market and the Federal Reserve lies in whether the rise in inflation is temporary or will be more persistent? And how should the two key goals of the Fed's monetary policy be balanced between weak employment and surging inflation?
How to balance weak employment and strong inflation?
Will they continue quantitative easing?
The Fed overnight fixed-rate reverse repo transaction hit $502.9 billion, continuing to set new records. Is this a move to contract liquidity?
Will there be tapering?
Let’s wait and see, folks!
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