US federal reserve says inflation temporary, but markets unsure

 Federal Reserve officials have advised that any pickup in inflation this year was bound to be transitory. Traders in financial markets, however, aren't so sure.

Over and over again, Federal Reserve officials have advised that any pickup in inflation this year was bound to be transitory. Traders in financial markets, however, aren’t so sure.

Investors have become fixated on widespread signs of price pressures as commodities like copper and lumber surge to records, and the bond market’s expectation for inflation over the next decade climbs to an eight-year high. The focus is triggering swings in the stock market, sending the Cboe Volatility Index to the highest since March on Tuesday.

The most recent round of U.S. corporate earnings calls showed the word inflation was back in vogue, with its usage rising 800% from a year ago, according to Bank of America Corp. Even last week’s payrolls report, which showed the U.S. added only about a quarter of the jobs economists expected in April, is being viewed as a sign that companies will have to boost wages to entice more unemployed workers into the labor force.

“Inflation risk is what we want to watch here,” Savita Subramanian, Bank of America’s head of U.S. equity and quantitative strategy, said on Bloomberg Television on Friday. “I don’t know if it’s going to be transitory.”
U.S. inflation data for April will be reported on Wednesday, with economists forecasting the Consumer Price Index rose to 3.6% on a year-over-year basis due to base effects from lower prices last year during the start of Covid-19 lockdowns.

Policymakers are standing their ground. Even known Fed hawks have chimed in over recent weeks to say that inflation is unlikely to get out of control despite unprecedented government spending in response to the coronavirus pandemic. Both Fed Chairman Jerome Powell and a top Biden administration economic adviser have said that the inflation now apparent in certain pockets of the economy is “transitory.”

That description raises an important question: Just how long does “transitory” mean? The answer is probably unknowable at the moment, but past recessions provide some clues.
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