There’s a theme this week

Global outlook 

The IMF raised its global economic outlook this week, largely driven by a brighter picture ahead for the US economy. The IMF is expecting the US economy to grow 6.4% this year, followed by a slight decline (though still healthy) 4.4% growth rate in 2022 (this compares to the Fed’s expectations for 6.5% and 3.3%, respectively). Globally the IMF is expecting growth to be 6% this year followed by 4.4% next year.

Moral of the story: The losses expected from the pandemic are not expected to be as severe as the IMF’s prior estimates, but there will be a bigger dispersion between emerging markets versus larger developed markets. Notably, the IMF also believes that inflation won’t out of control in most countries. 

Meeting minutes

The meeting minutes from the Fed’s March session showed a pretty meaningful divide between the committee members on the outlook for inflation. Several members think a big return in demand (roaring 2020s) coupled with supply bottlenecks will push up inflation more than expected. The other camp believes the fundamental factors that have kept inflation low for the last ten years will continue to keep things under control.

Moral of the story: The Fed remains steadfast in its objective of achieving employment recovery and seems willing to let inflation run a little higher if needed. The March jobs report was definitely encouraging but we’re still a long way from achieving the unemployment levels that would cause the Fed to back off their accommodative policies. 

New highs 

Producer prices surged 4.2% in March, marking the largest annual increase we’ve seen in this measure in the last 9.5 years. This is on the heels of a 2.8% increase in February and well above expectations from the market. If you haven’t picked up on the theme yet, it rhymes with “finflation.” 

Moral of the story: There have been some issues with supply chains getting backed up, which could be driving some of this pricing pressure. But I would expect to start seeing some of this being passed on to consumers in the near future. I think the takeaway we’re getting from all this inflation-related data is that inflation will likely get a little hot in the back of this year, but it will hopefully be a temporary reaction as we get life back on track. 

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