In her testimony last week Fed Chair Yellen seemed to hint that she was starting to second-guess whether the recent softness in inflation was just due to transitory factors, according to analysts at ANZ.
“The latest CPI figures arguably added to the convoluted picture. Some of the components that have been responsible for recent weakness (like telecommunication services) continued to weigh, while others, such as services ex-energy inflation, are a little more consistent with spare capacity continuing to be absorbed in the economy. It is a mixed picture that is likely to leave the Fed cautious, and it is little wonder markets have lowered the odds of further rate hikes this year. Whether it also delays the start of balance sheet normalisation remains to be seen, but we suspect the Fed will want to push on with that for now.”
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