Today's inflation report continued to reinforce the theme that gaudy price gains are not standing in the way of demand. It dosen’t seem, the Fed will overreact to this condition & the Fed to likely raise rates in March.
*Controlling inflation that has spiked to nearly a 40-year high is the "most important task" facing the Federal Reserve right now, Fed Governor Lael Brainard said in prepared remarks for a Senate hearing on Thursday on her nomination to become vice chair of the U.S. central bank.*
*"We are seeing the strongest rebound in growth and decline in unemployment of any recovery in the past five decades," Brainard said in comments to be delivered to the Senate Banking Committee. "But inflation is too high, and working people around the country are concerned about how far their paychecks will go. Our monetary policy is focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone. This is our most important task.*
Brainard is scheduled to begin her testimony at 10 a.m. EST (1500 GMT) in a session that could mark the start of a broader and potentially bitter partisan contest over the make-up of the Fed's seven-member governing board.
*Only four of those seats are filled right now, and pending Biden appointments, including for a second vice chair's slot overseeing financial regulation, could advance what he and his Democratic supporters feel should be a bigger Fed role on climate issues and a tougher hand with Wall Street*
*St. Louis Federal Reserve Bank President James Bullard on Wednesday upped his view of how fast the U.S. central bank should tighten monetary policy, saying he now believes four interest rate hikes may be in the cards this year.*
While stocks closed off the session’s best levels, the market was showing signs of relief that inflation pressures didn’t overshoot expectations.
Now the next test is will inflation pressure actually moderate. It seems it will, but I don’t think it will back off the 2% target range the market is expecting.
We still will have above-trend growth and above-trend inflation, such a mix could reignite the recent sharp rotation by investors into value stocks, but away from growth.
Worries about runaway prices, and the Fed’s response, have helped the S&P 500/Citigroup pure value index rise 5.5% this year as the S&P 500/Citigroup pure growth index has retreated 5.1%.
*However, climbing oil prices potentially could still add to consumer woes. Since year-end, oil prices have jumped nearly 10%, with WTI currently sitting at $82 per barrel, suggesting that inflationary pressures from energy are likely to re-emerge.*
*Investors now also are eager for a blueprint from the Federal Reserve on how it plans on reducing its balance sheet, including potentially selling assets, a tool Chairman Jerome Powell didn’t rule out Tuesday, in his confirmation hearing for a second term at the helm of the central bank.*
*Cleveland Fed President Loretta Mester on Wednesday said she backs the central bank shrinking its balance sheet “as fast as we can,” so long as the pace doesn’t hurt financial markets. Bullard said he favored a “passive runoff” in which the balance sheet declines as assets mature without being replaced.*
*Should the Fed start selling Treasurys and mortgage-backed securities, instead of letting them roll off the balance sheet, it would mark a major change in the past 10-12 years of monetary policy. What’s going to happen if your biggest bond buyer now becomes a seller?*
*In other economic news, the latest Federal Reserve Beige Book report on economic conditions showed solid growth in the ability of businesses to pass along price gains to customers in December, a departure from recent years. The U.S. economy grew at a modest pace in the final weeks of last year, but businesses’ expectations for growth over the next several months have cooled in some places.*
By: via @AlliesFin Serve Stock Market
