Inflation Will Continue to Drift Higher: Porcelli

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June 18 (Bloomberg) -- RBC Capital Markets Chief U.S. Economist Tom Porcelli discusses the U.S. economy, risk of inflation and monetary policy on Bloomberg television’s “Bloomberg Surveillance.” (Source: Bloomberg)

Inflation.

Nevertheless, plosser philadelphia richmond, feldstein from harvard, they're losing sleep.

Thomas porcelli, are you losing sleep?

I'm losing sleep because of a 12 week old at home.

Congratulations.

But other than that -- the only child in america not singing "let it go." he can even talk yet.

But he can scream really loud.

The vector has changed on inflation?

We think it will continue to drift higher.

Dudley was clear -- by the way, there are a lot of great little nuggets in anchorage and went to read it.

One thing he was clear, they're basically willing to let inflation drift tire and remain north of 2% for some period of time.

The imf during the world three years ago or so with 4% inflation.

What is high inflation for yellen and her colleagues for those opposing such as charles plosser?

We can create drama -- but what is the number?

It is not necessarily getting to a number.

I think it is how long you stay at that number or north of that number.

I think that is the real question.

At this point, is a great example of how they're not going to drift in terms of their thinking.

We expect 2.5% on headline inflation.

For the better part of the year.

That will not sway their thinking with regard to policy.

You're talking about a solid five point period.

Are you into 2016 for any kind of rate increase?

We are.

You have the chart of the day.

Thomas porcelli gave it to us.

You brought this chart to show us how investors struggle with getting the actual path of interest rates correct.

This is a chart of my eyebrows.

What are those lines coming up?

Let's explain this.

I'm going to start calling this the eyebrow chart.

Let's make this simple.

This basically shows the actual path of fed funds, the dark line, and the dotted lines are expectations for the direction of fed funds at the specific times.

What you can basically see is the market almost always get it wrong.

We have this chart back decades and it is always true.

I see this across wall street, folks, a single point of the chart in time, say christmas of 2012, the dotted line is, what is the guess at that time where janet yellen or ben bernanke is going.

The headline is, they have been wrong.

Absolutely.

The market is universally wrong.

It is interesting we put so much emphasis on these dots from the fed and we try to understand, there are 13 members that think there will be a rate increase in 2015. let me ask you, if you look back at 2012 when the fed started to make this public, does anyone want to guess the number of fed officials that actually thought you would have an increase before 2015? 11. 11 fed officials thought you would have a writ increase before 2015. now we're going to coalesce in the 2015. that is the point of the chart, too.

You your self address it.

I weighed to clarify this.

Ultimately if during q&a today, this janet yellen is pushed, we think she will of knowledge the reasonableness of a midyear liftoff.

She believes in the dotted lines two, in other words.

I think they all do.

They want their key policy pool -- it is one of their key policy tools.

Referencing that dudley speech a moment ago, he basically said, it seems reasonable we will have lift off sometime in the middle of the year because basically, most fed officials think that and the market -- the way -- that chart -- this year, 2015. next year, thomas porcelli is out even further.

We expect the first hike will come in 2015 and start to get into the ramp up period in 2016. books i wanted to find lift off.

Is it market expectations or actual rate rise or the economy turning as well?

I would argue the economy has already turned.

Not to the degree google one, nevertheless, -- not to the degree people want, but nevertheless, if you think about the average recovery is about seven years, in theory, your two years away from the next recession.

But we would argue given the fact there is this lack of and balances in the system right now, you'll have a much longer than average economic -- morty singer.

To see any indication on economic slowdown?

Midprice, the cheaper brands?

For the time being, it will still be about luxury.

The midmarket will still be squeezed.

Luxury is on fire globally.

The luxury consumer is just rolling.

Fox they're not really dependent on what the fed says or does.

Beyond janet yellen, there are a lot of officials who say things about the market and somewhat the fed should do.

Some of them vote and some don't. plosser, dudley, fisher, fischer.

For those who don't follow every single move and everything they say, who carries the most weight?

There is a core member of the federal reserve, yellen is part of that, but dudley is absolutely part of that as well.

The new fisher.

-- fischer, we presume he will also become part of that core.

There are a few members you want to pay attention to.

That dudley speech, for the third time, a really resonated because a lot of the agency was saying, some new, to us suggests janet yellen is also in that camp.

Bring this back to mere mortals.

The idea of all of this discussion is the continued financial repression.

When do rates go up?

When do retirees get a break?

One of the things we're been expecting is the 10 year yield will start to rise before the end of the year.

You had a 288,000 initial print on jobs two months ago.

You had to under 12,000 jobs last month.

Yet yields have done the exact opposite of what you would expect on those days.

As a result, we've had to scale back expectations for where we expect a 10 year yield to finish.

The fed, part of the bigger conversation we're having today, the fed left off in the middle of next year.

We think they do, but once they start that liftoff process, it suddenly so as to keep rates generally speaking across the curve low.

The headline from bill gross, he is modeling a decade.

One of the big headlines last week was mark carney of the bank of england changing is line which a bit too signal interest rates will rise sooner than people expect.

Did he change the way they communicate to investors?

There is this fishing expedition to some extent by the central bankers for transparency.

This ever elusive transparency.

In theory, transparency is a good idea but in practice, you can get tricky.

You have a lot of voices out there.

I think that can add to the confusion of this process.

It is important is to focus on a few key members.

I think that is generally worry we'll get the path of policy, the direction.

Thomas porcelli with us from rbc and morty singer.

2:00 pm, i'm thrilled to join mark crumpton will have our coverage, our special coverage of the federal open market committee rate decision and

This text has been automatically generated. It may not be 100% accurate.

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