More prices are rising; more prices are rising by more
- US consumer price inflation is clearly shaking off the distortion of the oil price, which has plagued it for the last two years. Most inflation measures (including those that exclude oil) are above their twenty-year averages, and the breadth of inflation is increasing.
- Fed Chair Yellen's testimony to Congress yesterday offered little additional insight. New York Fed President Dudley discussed quantitative policy tightening. Fed Vice Chair Fischer speaks today, who is thought to advocate quantitative policy tightening. The Fed should tighten in the face of higher inflation. How they should tighten is an open question.
- US political noise does not directly matter to markets. The noise does signal possible tensions between the president and Congress. That matters to markets because it could hinder the fiscal policy agenda. A Congressionally thwarted President Trump may in turn pursue the policies he can control more aggressively (trade and immigration).
- The "account" of the last ECB meeting is due, along with several ECB speakers. By preannouncing policy this year, ECB President Draghi presumably hoped to guarantee that some quantitative policy would persist. The increase in inflation rates, and the divergence of inflation rates, present some challenge to that view.