- Conrad DeQuadros, senior economist at RDQ Economics
Finally, some promising data from the world's largest economy. A report from the Labor Department showed the cost of living in the United States climbed 0.4% in Math, posting the largest monthly gain since a 0.6% increase seen in February 2013. On a yearly basis, consumer prices climbed 2.1%, also posting the biggest annual gain since October 2012, and inching above Fed's 2% inflation target. At the same time, excluding volatile food and energy prices, a core measure picked up only 0.3% over the corresponding period. Even with stronger inflation, the long-term trend is still slightly below the 2% target, suggesting the Fed will be able to keep interest rates at a record-low for some time in an effort to boost growth without being afraid of inflation.
While we are bracing for a dovish Fed, a survey conducted by Bloomberg showed that the Federal Reserve will start raising its benchmark interest rate sooner than it is expected. According to 55% of respondents, EUR/USD futures, the most actively traded short-term interest-rate contract, are still underestimating the pace of tightening by the Fed. According to experts, analysts are pricing in the potential move, however, the pace of tightening is slower than the Fed truly considers. Moreover, analysts claimed the central bank can point out the economy is performing above estimates, even despite the recent slack in the economy.
© Dukascopy Bank SA