Daily update
Daily update
- Federal Reserve Chair Powell is not an economist. Not everyone can be an economist, but central bank heads probably should be economists. Yesterday, Powell stated reaching 2% inflation was taking longer than expected. The US PCE deflator is 2.5% y/y, the core PCE deflator is 2.8% y/y, and harmonized inflation is 2.4% y/y. Imprecise data means most economists regard a 2% inflation target as meaning a 1%-to-3% range. The fictional owners’ equivalent rent may be taking longer than expected to reach 2%, but that is not the same thing as inflation.
- Powell has never articulated a medium-term policy framework beyond “data dependency”. Keeping interest rates higher for longer will do nothing to reduce owners’ equivalent rent (it might increase it). Higher for longer might make durable goods deflation worse. There is a risk that Powell might be more concerned with political presentation than good economics.
- UK consumer price inflation measures slowed, fractionally less than expected. Food prices helped the slowdown, but UK CPI probably still overstates food inflation. April is when inflation is expected to slow sharply, as the UK’s weird energy price policy corrects prices lower.
- With central bankers gathering in Washington, Bank of Engand Governor Bailey (economist) and ECB President Lagarde (non-economist) are due to speak.
