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WH: Markets Not Worried About Inflation06/16 06:15

   The White House believes it has an ally in the bond markets to make the case 
that inflation isn't an economic threat.

   (AP) -- The White House believes it has an ally in the bond markets to make 
the case that inflation isn't an economic threat.

   Republican lawmakers have interpreted the jump in consumer and producer 
prices as a sign that inflation is spiking at levels that will hurt growth, 
saying that President Joe Biden's $1.9 trillion coronavirus relief package 
overcooked the economy. But the financial markets appear to be backing Biden's 
case that any price increases are the fleeting result of the United States 
restarting after the lockdowns caused by the coronavirus pandemic.

   The White House points to charts that dig into two key market-based measures 
of inflation and show no cause for alarm in the medium to long term. The charts 
look at the interest rate on the five-year U.S. Treasury note and a measure of 
expected inflation known as 5y5y, which looks forward five years to investors' 
five-year inflation expectations.

   As of Monday, the 5y5y was trading at 2.28%, an indication that annual 
inflation will be close to the Federal Reserve's 2% target. The charts suggest 
that inflation expectations -- despite the recent bump in prices -- are within 
the realm of expectations over the past 15 years. They also show that market 
expectations of coming inflation have essentially been flat in recent months.

   While the markets offer evidence that the recent bout of price increases 
could fade in a few months, there are conflicting signals for economists. 
Demand for houses and other products has outpaced supply, a sign that inflation 
could be a problem. But there is also the possibility that the persistent 
demand could trigger more supplies to come onto the market. The uncertainty has 
been magnified for voters as Republican lawmakers say that inflation will 
devastate the economy and Democrats counter that rising prices are temporary.

   Harvard University professor Jason Furman, who served as chief economist for 
the Obama White House, noted that there are arguments for and against rising 

   "The more I think about inflation the less sure I get of anything," Furman 
said Monday on Twitter. He added that there is a wide range of possible 
outcomes and "policy decisions should explicitly recognize our uncertainty."

   Biden aides are optimistic that the market figures, along with household 
sentiment surveys, indicate that inflation will drift down. But they're also 
cautious in interpreting what's next because of the unprecedented nature of 
shuttering an economy due to COVID-19 and then reopening it with a total of 
roughly $6 trillion worth of aid, a sum that includes money approved during 
Donald Trump's presidency.

   The Labor Department said last week that consumer prices rose at an annual 
pace of 5% in May, as prices for used vehicles, airfare and gasoline surged. 
Producer prices -- what businesses pay for goods and services -- are up 6.6% 
from a year ago, the Labor Department said Tuesday. But market analysts 
anticipate that the forces driving inflation will lessen.

   "The underlying causes of inflation are supply chain disruptions, labor 
shortages and emergency stimulus which is boosting demand," said Bill Adams, an 
economist with PNC Financial Services. "All of these drivers of inflation will 
be less of an issue in the second half of the year."

   It's unclear whether the financial markets' relative calm reflects 
confidence that the Fed will raise interest rates should inflation stay 
elevated. Fed officials will end their June meeting on Wednesday, giving 
forecasts of economic performance and inflation and potential guidance about 
when they could lift their benchmark rate from near-zero.

   Senate Republican leader Mitch McConnell has put the blame squarely on Biden 
for rising prices, arguing that government intervention has caused prices and 
wages to increase to a degree that will ultimately imperil the economy. It's a 
message with a clear eye to the 2022 midterm elections, when Biden's 
performance will be at the forefront of voters' minds.

   "The latest data reinforce what too many Americans have been experiencing 
firsthand: The Biden administration's partisan spending bill has blunted our 
nation's economic recovery," McConnell said last week on the Senate floor. 
"Higher prices at the gas pump and grocery store. A tougher time for small 
businesses trying to staff up."

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