BlackRock Investment Institute

Macro insights

Eyes on inflation overshoots

We see the drivers of the current U.S. inflation spurt as different from those that should produce a higher inflation over the medium term. Yet the inflation overshoot against a backdrop of accelerating growth as the economy reopens provides a test of the Federal Reserve’s new policy framework.

A long way from targets

Chart showing headline and core inflation against the Federal Open Market Committee’s projections

Sources: BlackRock Investment Institute, Bureau of Economic Analysis, with data from Haver Analytics, April 2021. Notes: The dotted lines show the Fed's projection for quarter-on-quarter core personal consumption expenditure for the fourth quarter in 2021,2022 and 2023. The data from the Fed's March 2021 Summary of Economic projections.

The chart shows headline and core inflation against the Federal Open Market Committee’s projections. We see three factors responsible for a near-term spurt in inflation: base effects that will distort year-on-year comparisons, global and local supply constraints and considerable pent-up consumer demand and excess savings.

All three effects are likely to be transitory, in our view, yet the surge in inflation has medium-term implications. Our view of higher medium-term inflation rests in part on the Fed sticking to its average inflation targeting policy framework, and looking to normalize monetary policy much more patiently than in the past. If inflation expectations were to become unanchored, inflation could start to rise in a more sustained manner.

Recent macro insights

Looking through inflation noise
The Fed’s new policy framework is designed to counter stubbornly low inflation by flexibly targeting an average core PCE inflation rate of 2% over the long-run.
Eyes on inflation overshoots
We see the drivers of the current U.S. inflation spurt as different from those that should produce higher inflation over the medium term.
Consumption key to the restart
A rapid restart in consumption will be key to the U.S. economy returning to its pre-Covid trend by the end of the year. We expect the pent-up demand built up since last yea...

Stay ahead of markets with the latest insights from the BlackRock Investment Institute.

Please try again
First Name *
Please enter a valid first name
Last Name *
Please enter a valid last name
Email *
Please enter a valid email
Investor type *
This field is mandatory
Country *
This field is mandatory
Company *
This field is mandatory
Thank you
Thank you for your subscription!
We usually publish weekly insights on every Monday. Expect to receive your first newsletter from us this upcoming Monday.