- I don’t know why markets are so optimistic about inflation
- Inflation risk are still to the upside
- I don’t see a dramatic slowdown in labor market yet
- We are resolute to get inflation
Inflation
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Read this Term to 2%
- I have a higher peak rate therefore, and held longer, then some bond investors have predicted
- If data comes out better, than policy will adjust
- It’s important to say we see nothing but hope in the inflation data, not confidence
- Won’t be confident until see repeated evidence that inflation is truly on path to 2%
- Everyone at the Fed expects rates to hold for all of 2023
- we do not want to repeat the mistake of not doing enough to beat inflation
- so far Fed has not done it too much or too little
- rates are mostly restrictive territory
- we can’t wait until inflation gets to 2% before we stop tightening
- we have to account for policy lags, have to watch data to determine what they are
- it makes sense that people are buying things and doing things after hunkering down for so long
- resilience of American consumer has been surprising
- We may need to hold rates at peak for longer than we usually do
- The data will determine how long we will hold rates at peak
- 11 months as a starting point for how long to hold rates is reasonable, prepared to do more (everything is data dependent, but 11 months is set in stone as the absolute minimum).
- I am aligned with median projection in summary of economic projections.
The Fed is getting annoying.
A year ago they were talking about transitory inflation and were adamant about it. Now they are adamant about permanent inflation.
The market is making a play because it is a living-being. The Fed is dead.
I get it… The errors from their text books showed that the Fed thought inflation was dead in the past and that was a mistake.
However, 1980 is not 2020. There is a shortage of workers especially in the service sector. The service sector is working to fix it. They need to increase productivity. If it means shutting the counter at McDonalds and accepting app orders/drive thru only, they will figure a way to get out more burgers with less.
It took Williams two days to start to talk about raising the terminal rate, and using 6% in a comment. Why talk about 6% when the body of Fed official ALL just met, and agreed 5.1% was “IT” two days ago? Everyone had a opportunity to put 6% down or 4.8% down. They put 5.1% down and published it.
If they can coin the term “transitory inflation” and talk about it ad nauseam, why not coin the term “permanent inflation”. That is what they believe now.
They may be right, but if you take the last 5 months of CPI, it averages 0.2%. That is 1% for 5/12 of the year. Stop the lie that a $0.25 raise to service employees wages requires prices going up 10% on all prices.
Rant… yes, but Fed officials should put a blackout period after their meetings too and have that last until 2 weeks before the next decision.
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#Feds #Daly #dont #markets #optimistic #inflation #Forexlive
