The US Federal Reserve (Fed) indicated in its semi-annual Monetary Policy Report released on Friday that “side risks to the inflation outlook in the near term have grown.”
Prices for items experiencing supply chain bottlenecks have put more permanent but presumably still transitory upward pressure on inflation.
Since the end of last year, both survey-based and market-based measures of longer-term inflation forecasts have risen.
Expectations of inflation in a range that is roughly compatible with the longer-term inflation target.
The Federal Reserve’s institutions, which are at the heart of the financial system, have remained resilient.
The second quarter’s data point to a continued strong increase in demand.
Some money market funds, as well as bank loan and bond mutual funds, have structural weaknesses.
In terms of the Fed’s asset purchase program, the committee will continue to review the economy’s progress toward its objectives in upcoming sessions.
The post-pandemic labor market and maximum employment characteristics may alter significantly from those of early 2020.
If new risks materialize, the Fed is prepared to modify its monetary policy stance as needed.
Supply and demand should return to normal as the unexpected events fade away, and inflation is largely projected to fall.
The impact of the pandemic-related retirements on labor force participation will be felt for some time.
After a period of temporarily higher inflation, recent readings on inflation expectations indicate that inflation will return to levels compatible with the committee’s 2 percent longer-run inflation objective.
The temporary modifications to the supplemental leverage ratio that expired in March 2021 had no noticeable impact on treasury market functioning.
The CIE index of the Fed is now at levels that are ‘likely more consistent’ with the Fed’s longer-term inflation target of 2%.
The majority of hedge fund leverage indicators are currently higher above their historical averages.
The Fed report has had little to no effect on the US dollar index, which is still recovering at 92.30 at the time of writing./n
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