Increasingly the Fed has been including a global economic context in the monetary policy narrative and as a result has managed to undermine any expectations that rates are headed higher anytime soon. The global economic landscape is currently littered with failed central bank attempts at igniting demand or stimulating growth.
From Japan, BOJ meets this week as well, to the EU and elsewhere, growth has been exceedingly difficult to come by. All the accommodation in the world, literally, has not yet yielded the desired and well outlined goals – including inflation.
Last week Brent crude rallied above its 200 DMA for the first time since the collapse of crude over eighteen months ago. That trade may ultimately act as a boon to central banks as historically energy prices have played an inordinately large role in the global rate of inflation. Crude WTI has also refused to relinquish the gains it has earned since the February 11th lows. In fact, recent EIA Petroleum Status Reports have indicated that robust consumer demand is finally having an impact on swollen inventories. That consumer demand, which is only likely to grow in the coming summer months, will at a minimum establish a floor for crude and a trend higher in pricing that should deliver what central bankers have struggled to do – ignite inflation. Of course inflation is measured in a multitude of ways and has a variety of inputs.
It is fair to say that Fed policy, as opposed to central bank policy elsewhere around the globe, has delivered on impressive gains in spite of global headwinds. Employment growth, continued modest economic expansion and green shoots of inflation in the most recent employment report do speak to that.
Last month we even saw the participation rate tick higher.
If employment gains can remain a constant and wage growth accelerates while crude remains in a bullish pattern we may well see the inflation rate finally achieve target 2%.