“They have a long ways to catch up to normalize policy, and they’re not going to be thrown off by a couple months of weaker inflation data,” said Mike Swell, co-head of global fixed-income portfolio management at Goldman Sachs Asset. “They’re still likely to do a couple of hikes this year as well as the beginning of tapering.”
That view is based on a forecast for stronger economic growth in the second half of 2017, coupled with moderate inflation increases, he said.
By at least one measure, economic data are falling short of market expectations lately. Citigroup Inc.’s U.S. Economic Surprise Index this week touched its lowest level in a year.
Yet the labor market continues to show signs of tightening, with jobless claims declining for the third straight week and benefit rolls matching the lowest since 1973, Labor Department data showed Thursday.
The unemployment rate, at 4.4 percent, is the lowest since 2007 and in line with what many Fed officials see as full employment.
“The Fed will most likely put a very heavy weight on the employment picture and how much growth we’ve had over the last 12 months,” said Matthew Scott, a senior bond trader at AllianceBernstein LP. “If you look at monetary policy as a seesaw, the strong employment data gives them greater cover to hike, despite the disappointing CPI data.”
This article was provided by Bloomberg News.