The Daily Update: The Fed Beige Book & Powell speaks

The Fed Beige Book Report, released yesterday, pointed to a pick-up in the growth momentum of the US economy noting: “National economic activity accelerated to a moderate pace from late February to early April. Consumer spending strengthened. Reports on tourism were more upbeat, bolstered by a pickup in demand for leisure activities and travel which contacts attributed to spring break, an easing of pandemic-related restrictions, increased vaccinations, and recent stimulus payments among other factors.” In terms of pricing pressures, it noted “Prices accelerated slightly since the last report, with many Districts reporting moderate price increases and some saying prices rose more robustly. “However, the report also noted that while “Input costs rose across the board” these “Cost increases were partly attributed to ongoing supply chain disruptions, temporarily exacerbated in some cases by winter weather events.” Earlier this week the Biden administration in a blog “Pandemic Prices: Assessing Inflation in the Months and Years Ahead” by Jared Bernstein and Tedeschi noted that prices will likely accelerate in coming months as base-effect, pent up demand and supply chain constraints take effect but like the Fed they see the likely impact as being transitory. In terms of the longer term inflation trajectory and inflation expectations they see these only moving up from “historically low to more normal levels”.

Yesterday, Jerome Powell appeared at a virtual event for the Economic Club of Washington. He reiterated that the US economy looks to be at an “inflection point” which he expects to lead to “a period of faster growth and high job creation” and that the main risk to this is another spike in covid cases. He also gave some indication about the eventual sequencing of an exit strategy from the current accommodative policy stance: “We will reach the time at which we will taper asset purchases when we’ve made substantial further progress toward our goals from last December, when we announced that guidance,” and “That would in all likelihood be before -- well before -- the time we consider raising interest rates. We haven’t voted on that order but that is the sense of the guidance.” The FOMC March dot plot showed the median of Fed officials’ interest rate projection at near zero through 2023.