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US Philly Fed Survey Higher

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US Philly Fed Survey Higher

The Federal Reserve Bank of Philadelphia has just released it’s respected regional Manufacturing Survey for the month of March. This key activity indicator has registered at 16.6 this month, this is up on the February reading of 9 and easily beats the market consensus estimate of 10.

Despite several weeks of positive US economic data releases and a largely favorable report from the International Monetary Fund last week there are stirrings of concern around the sustainability of price growth into the future.

These backroom deflationary concerns have now made it into the spotlight thanks to a question put to the Fed chair, Janet Yellen, at an address in New York last night. Martin Feldstein, a Harvard professor and former economic advisor to the Reagan administration, asked if the Fed would allow inflation to creep above two percent in order to give the recovery a bit more support.

Yellen’s response was to state that “with inflation running at around 1%, at this point I think the risk is greater that we should be worried about inflation undershooting our goal and getting inflation back up to 2%”. This typically broad and innocuous statement from the central banker would have gone under the radar were it not that in an effort to explain the Feds position she drew a parallel to the situation that the European Central Bank is currently facing and noted that the Fed was also ‘struggling’.

The US has up to now largely escaped scrutiny of it’s price stability situation, the focus has instead been on unemployment. As of now deflation does not pose the same threat in the US as is being faced in the Eurozone and markets appear to have reacted positively to the Fed finally publicly acknowledging the elephant in the room. This does not necessarily adjust the ‘accommodative’ timeline laid out by the Fed however it does afford the market some clearer insight into the Banks priorities.

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