Macroscope | Jerome Powell faces a ‘poisoned’ scenario no central banker would envy

President Donald Trump may have done Janet Yellen a favour by not giving her a second term as chairwoman of the Federal Reserve. Her successor, Jerome Powell, may have inherited a poisoned chalice. The Fed will have to up the pace of US rate hikes or risk accusations of being behind the curve as markets react to signs of rising inflation.

At the start of February, there was an above-forecast 2.9 per cent year-on-year rise in US average hourly earnings (AHE) for January, the biggest increase since June 2009. Analysts noted however that as there had been a fall in the average number of hours worked in January that would have bumped up the AHE figure.

Then last week the headline month-on-month US consumer price index (CPI) for January was also above consensus. More importantly, the core US CPI, excluding volatile components such as food and energy, rose by 0.349 per cent compared to the previous month, significantly above the 0.2 per cent increase analysts had expected.

Again though, analysts could explain their CPI underestimates by noting that clothing prices unexpectedly jumped 1.7 per cent in January, the biggest monthly increase for apparel since 1990.

Yet Thursday’s release of US producer price index (PPI) data also provided a surprise. While the headline 0.4 per cent month-on-month rise in January matched analyst expectations, core PPI rose by 0.4 per cent month-on-month, double the 0.2 per cent that had been expected by analysts polled by Bloomberg.

Also on Thursday, the New York Fed’s Empire State Manufacturing prices-paid index rose by 12.4 points to 48.6 in February, a level last seen in 2012, while data from the Philadelphia Fed Manufacturing Business Outlook Survey saw its prices-paid index reach its highest level since 2011.