US inflation expected to hit 6%

U.S. inflation has moved back to the center of the economic debate after two strong monthly consumer-price readings, a hawkish warning from Kansas City Fed President Jeff Schmid, and Kevin Warsh’s confirmation as the next Federal Reserve chair. The Bureau of Labor Statistics said on May 12 that consumer prices rose 0.6% in April after a 0.9% increase in March. That left annual CPI at 3.8%, but the monthly pace, if sustained, is much hotter than the Fed’s 2% target. Markets are also recalibrating around the Fed. Reuters reported on May 13 that the Senate confirmed Warsh as Fed chair in a 54-45 vote, with Jerome Powell’s term as chair ending on Friday. Reuters said investors were already grappling with rising oil prices and the possibility that inflation could force the central bank to keep policy tight for longer, or even consider a rate increase later this year. (bls.gov) ### Why are people suddenly talking about 6% inflation? March and April CPI data are the immediate reason. The BLS said prices rose 0.9% in March and 0.6% in April on a seasonally adjusted basis. Two consecutive readings at those levels pushed economists and investors to look at what the current quarter would look like if those monthly gains persisted or if energy-led price pressure broadened further. (money.usnews.com) April’s details show where the pressure came from. The BLS said energy prices rose 3.8% in April and accounted for more than 40% of the monthly increase, while shelter rose 0.6% and food rose 0.5%. That mix matters because it combines a geopolitical oil shock with categories that hit household budgets directly. ### What did Jeff Schmid actually say? Jeff Schmid said on May 14 that “continued inflation” is “the most pressing risk to the economy” even though the United States has shown “remarkable resilience.” In remarks at the Future of Banking conference in Kansas City, Missouri, Schmid said higher oil prices were draining household spending power and raising business costs, while unemployment remained relatively low and the labor market was still functioning. (bls.gov 1) (bls.gov 2) Schmid’s formulation matters because it pairs two ideas the Fed has been wrestling with for months: inflation pressure on one side and a labor market that has not cracked on the other. His comments fit with the Fed’s April 29 statement, which said economic activity was expanding at a solid pace, the unemployment rate had changed little, and inflation was elevated partly because of higher global energy prices. (kansascityfed.org) ### Where does Kevin Warsh fit into this? Kevin Warsh takes over at a moment when inflation is rising again and the White House has been pressing for lower rates. Reuters reported that Warsh, 56, will assume the job with markets focused on whether the Fed can contain inflation without losing control of longer-term borrowing costs. The Senate confirmed him on May 13 after first approving him for a 14-year term as governor. (federalreserve.gov) Yahoo Finance reported that Warsh told senators the Fed needs a different inflation framework and favors trimmed-average measures that remove outlier data. That stance could matter if headline inflation remains volatile because of energy while broader price measures also start to firm. (money.usnews.com) ### What is the Fed’s rate setting now? The Federal Reserve said on April 29 that it kept the federal funds target range at 3.50% to 3.75%. The statement said the committee remained attentive to risks on both sides of its dual mandate but described inflation as elevated and cited uncertainty tied to developments in the Middle East. (finance.yahoo.com) The March 18 Summary of Economic Projections is now dated by events. Those projections were based on information available at that meeting, before the latest CPI data and before Schmid’s May warning. Investors will get the next formal policy signal at the June 16-17 FOMC meeting, with a press conference scheduled for June 17. ### What should readers watch next? (federalreserve.gov) June 11 is the next key inflation date. The BLS release calendar shows the next CPI report that morning, and it will give the first full read on whether the spring price surge is easing or extending into another month. June 16-17 is the next key Fed date. The Federal Reserve calendar shows the next FOMC meeting over those two days, followed by a June 17 press conference that will put Warsh-era expectations, Schmid’s inflation warning, and the latest CPI data into the same policy frame. (federalreserve.gov) (federalreserve.gov) (bls.gov)