Parkin of the Fed says:
- He wants more evidence that inflation is stabilizing back to target
- The economy is doing quite well at the current level of rates
- He is reassured by what he sees in the banking sector
- You never want to declare victory over a potential banking dynasty
The Fed playbook raises interest rates by 25 basis points at the May meeting. This is where the playbook may differ as some argue that inflation is still too high. On Friday we saw Michigan’s one-year inflation forecast rise to 4.6% from 3.8% last month. CPI inflation has fallen from 6% to 5%, but remains at 5% and shelter costs remain high. On the plus side, the long-awaited decline in shelter is expected to start making its way into the economy. Additionally, bank loans in the economy are expected to decline and are expected to slow in the second half of the year which should also be a headwind towards lower inflation.
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