Following Russia's invasion of Ukraine, the bond market's 5-10 year projection of annual chain-weighted personal-consumption-expenditures inflation reached 2.27%, raising concerns that another big shock could de-anchor inflation expectations. But since that didn't happen, the Federal Reserve now should reconsider its position.
BERKELEY – At the start of February 2022, the five-year, five-year-forward consumer-price-index (CPI) inflation break-even rate in the US bond market was hovering at around 2% per year – a figure that corresponds to a chain-weighted personal-consumption-expenditures (PCE) inflation forecast of 1.6% per year 5-10 years from now. Since 1.6% inflation is materially below the US Federal Reserve’s 2% target, I entered that month feeling quite good about being on “Team Transitory” – or at least on “Team The Fed Has Got This” or “Team Inflation Expectations Remain Solidly Anchored.”
But then, at the end of that month, Russian President Vladimir Putin – the wannabe Grand Prince of Muscovy – ordered a blitzkrieg invasion of Ukraine. Things did not go as he had planned. The Ukrainians fended off the initial onslaught, and both sides settled in for a longer war of attrition. Energy, grain, and fertilizer prices skyrocketed. The world began to worry that, come winter, Europe would freeze and many other countries – from Egypt to Nigeria – would starve.
Owing to these fears, the five-year, five-year-forward CPI inflation rate shot up from 2% per year to its peak of 2.67% on April 21, 2022, while expectations of annual PCE inflation 5-10 years hence reached 2.27%. That PCE projection suggested that bond traders had not lost confidence in the Fed’s commitment to its inflation target.
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Following the latest G20 summit, the G7 should be thinking seriously about deepening its own ties with more non-aligned countries. If the Ukraine war drags on, and if China continues to threaten to take Taiwan by force, the G20 will be split between friends of the BRICS and friends of the G7.
sees the grouping as increasingly divided between friends of the G7 and friends of China and Russia.
To prevent catastrophic climate change and accelerate the global transition to a net-zero economy, policymakers and asset owners urgently need to rethink how we channel capital at scale. The key is to develop new financial instruments that are profitable, liquid, and easily accessible to savers and investors globally.
explain what it will take to channel private capital and savings toward sustainable development.
BERKELEY – At the start of February 2022, the five-year, five-year-forward consumer-price-index (CPI) inflation break-even rate in the US bond market was hovering at around 2% per year – a figure that corresponds to a chain-weighted personal-consumption-expenditures (PCE) inflation forecast of 1.6% per year 5-10 years from now. Since 1.6% inflation is materially below the US Federal Reserve’s 2% target, I entered that month feeling quite good about being on “Team Transitory” – or at least on “Team The Fed Has Got This” or “Team Inflation Expectations Remain Solidly Anchored.”
But then, at the end of that month, Russian President Vladimir Putin – the wannabe Grand Prince of Muscovy – ordered a blitzkrieg invasion of Ukraine. Things did not go as he had planned. The Ukrainians fended off the initial onslaught, and both sides settled in for a longer war of attrition. Energy, grain, and fertilizer prices skyrocketed. The world began to worry that, come winter, Europe would freeze and many other countries – from Egypt to Nigeria – would starve.
Owing to these fears, the five-year, five-year-forward CPI inflation rate shot up from 2% per year to its peak of 2.67% on April 21, 2022, while expectations of annual PCE inflation 5-10 years hence reached 2.27%. That PCE projection suggested that bond traders had not lost confidence in the Fed’s commitment to its inflation target.
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