UBS On-Air: Paul Donovan Daily Audio 'Prices, perceptions, and policy'
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The New York Federal Reserve survey of inflation expectations is of little economic relevance, but may be of future political interest. Inflation expectations are skewed towards prices of high frequency purchases (food and fuel). Trade tariffs, as a sales tax, increase prices pai
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4 itemsUBS On-Air: Paul Donovan Daily Audio 'Prices palooza'
The desk argues that the US central bank's current reliance on individual consumer price data is problematic, suggesting that single data points should not dictate policy expectations. Per the full note from UBS, Paul Donovan highlights the disparity between the Fed's communication quality and market reaction to inflation data, indicating that today's consumer price metrics will significantly influence the outlook for interest rates. With bond market dynamics shifting due to rising crude oil prices, traders should be prepared for volatility, particularly as a critical Fed meeting approaches. These factors coincide with broader disinflationary trends suggested by mixed producer price data, fueling speculation about future rate hikes.
UBS On-Air: Paul Donovan Daily Audio 'The politics of price expectations'
The desk views the Michigan consumer sentiment data as politically powerful despite its weak economic signal, with a focus on the emotional connection consumers have to frequent purchases like food and fuel. Per the full note from UBS, Paul Donovan suggests that rather than raw inflation figures, voters are likely to retain a 'fair price' threshold that significantly affects sentiment. This underscores the importance of tracking gasoline prices closely, particularly relative to the recalled fair price of around $2.50, as fluctuations here can spell political implications for administration approval ratings and broader market sentiment.
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