CHICAGO (Reuters) – Investors are not worried about the surge in US inflation over the past two months, showing confidence that the Federal Reserve is cleverly handling a rebound in economic growth, even if it makes markets wonder how it defines “transitional ”When it speaks of higher prices.
In fact, the benchmark Wall Street Index slowly climbed to a record high after several days of sideways trading, and US Treasury yields fell after a Labor Department report on Thursday showed that the consumer price index (CPI) in May posted the largest gains since with the same period last year for 13 years. …
“The Fed is getting some support for its message that inflationary pressures are temporary,” said Colin Asher, senior economist at Mizuho in London. “If you really want to panic about inflation, you have to believe that the huge annual increase in commodity prices that we have seen will happen again next year, and it looks unlikely. (This CPI imprint) should be close to the high point. “
Fed officials have repeatedly quelled fears that inflation will consistently exceed its 2% target, but indicated that they have the tools to keep it under control. The announcement following next week’s next Fed policy meeting and comments from Fed Chairman Jerome Powell will be closely following the central bank’s latest look at inflation.
“It’s clear that bond markets are buying the narrative that it’s transitory – we don’t think it’s for certain, but in a way people seem to be confident that central banks can handle it, even if it turns out it’s not transitory,” he said. Peter Rutter. , Head of Equity at Royal London Asset Management.
While the S&P 500 <.SPX> skyrocketed to a record 4,249.74 on Thursday, and the 10-year Treasury yield, which rose slightly amid falling prices following the CPI report, later fell to a session low of 1.464%. more than 3 basis points compared to the CPI report. [.N] [US/]
It was the lowest rate since early March before inflation concerns pushed the underlying yield from 1.75% to its highest level since the pandemic.
A widely observed barometer of inflation expectations, the 10-year inflation-defended 10-year Treasury breakeven (BEI) rate, measuring the difference between the real yield on 10-year TIPS and the yield on 10-year bonds, was 2.35%, close to to two. -month low of 2.326% was reached on Wednesday.
This indicates that markets do not expect average inflation to significantly exceed the Fed’s 2% target over the next decade. In mid-May, the BEI exceeded 2.55%.
THE MARKET “INFLUENCE”, NOT “MOVEMENT”
Joseph LaVorgna, chief economist for the Americas at Natixis in New York, said the fact that many investors believe growth will slow perhaps significantly outweighs the rise in inflation.
“The market seems to be signaling clearly that the acceleration in economic growth is not sustainable and there may even be some concerns about what will happen to taxes, regulation and government spending,” he said.
Mark Grant, chief global strategist at R. Riley Financial in Fort Lauderdale, Florida, said inflation, which was an important market driver prior to the 2008-2009 financial crisis, has become more of a “market influencer.”
“The (inflation) figures were slightly higher than expected, but not out of range,” he said. “The bond markets weren’t surprised and I don’t think that will change the Fed’s view of keeping rates very low.”
The consumer price index rose 0.6% in May after rising 0.8% in April, the largest gain since June 2009, the Labor Department said.
In the 12 months to May, the consumer price index accelerated by 5.0%. It was the largest year-on-year growth since August 2008, following a 4.2% rise in April. The jump partially reflected the fall of last spring’s weak readings from the calculation. These so-called baseline effects are expected to stabilize in June.
Economists had forecast a 0.4% CPI rise in May and a 4.7% year-on-year rise.
Reporting by Karen Pierrog in Chicago; Additional reporting by Herb Lash in New York, Sruti Shankar in Bangalore and Sujata P. Rao-Coverly in London; Edited by Alden Bentley and Matthew Lewis