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Data released in the US point to a less than expected increase in durable consumer goods in March. The 0.5% increase in the headline data was below the expectation of 2.5%, and when the transportation is excluded, an increase of 1.6% is seen in parallel with the expectations. February data has been revised positively in both dataset. Data sets such as non-farm payrolls and retail sales, which show the degree of improvement in the economy and will also help to measure the ability of demand to create inflation, pointed to a significant improvement. In a sense, such activity data are important in terms of questioning whether growth or economic recovery will also bring inflation. Of course, it should be taken into account that the March data announced is included in the 1Q21 GDP.
Covid infections were very high in the US in January. March was the period when the economy entered the “enormous recovery” phase. Re-openings and recent economic data show it, at least, it cannot be guaranteed that there will be no downside risk at this stage. However, we are faced with the fact that many indicators return to pre-pandemic levels. Of course, there is no place to change the policy dynamics that enable this, as recovery is still in the process; However, after a certain stage, as the economy improves, the way of normalization of politics will have to be done.
Therefore, it can be mentioned that the Fed meeting will increase the signal that the change is approaching rather than containing a change. When the Fed publishes new economic forecasts in June, it could mean a plan to reduce bond purchases. Powell’s motto on this issue is to carry out any policy tightening regularly and to report it in a timely manner. If the Fed hesitates to reveal its next move, then the focus shifts to its timidity over economic data, primarily unemployment and inflation. This is how we will understand the FOMC’s hawkish-dovish balance.
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