Few central banks see any significant inflation pressure in the medium term - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the current low global inflation expectations appear significantly embedded. 

Key Quotes

“Few central banks see any significant inflation pressure in the medium term.  The Fed is not forecasting inflation rising above its 2% target at any stage in its three-year ahead inflation projections, which is pretty remarkable considering that its favored core measure is close to 2.0% (at 1.7%y/y) and its core CPI measure is already above this level at 2.3%y/y.

The risk is not insignificant that the Fed is underscoring the inflation risk.  The labor market is close to full employment and there is upward pressure on wages growth.  Meanwhile, most Fed commentators have emphasized a view that policy is only moderately accommodative and they are likely to hike only very gradually and not very far over coming years.

The Fed appears likely to be slow to respond to inflation risks in the economy, notwithstanding one further hike expected in December.  As such, the market may soon begin to price in a risk that they fall behind the curve and allow inflation to creep higher.  From the current low inflation mindset, even a modest risk of higher inflation might contribute to further rises in yields and curve steepening.”