You may not be buying the Fed’s “transitory” characterization of inflation, but nearly three quarters of investors polled for the June vintage of BofA’s closely watched Global Fund Manager survey are.
This month’s survey period was June 4 to June 10, so at least some responses presumably took into account May CPI. I doubt that’s particularly germane, though. If you were in the “transitory” camp anyway, you probably parsed the latest data with an eye towards confirmation bias, and there was plenty to be had. 224 panelists with $667 billion in AUM participated in the poll.
72% of FMS investors said inflation is transitory, while just 23% think it’ll prove “permanent” (figure below).
Asked about the likely timing of the next recession, more than two thirds don’t expect another downturn until 2024 “at the earliest,” BofA’s Michael Hartnett said. A quarter expect a recession in 2023. The percentage who think the economy will deteriorate dramatically within a year was negligible, at just 7%.
Meanwhile, the latest edition of the New York Fed’s consumer survey showed year-ahead inflation expectations jumping to 4% in May, up sharply from 3.4% the previous month. That’s the seventh consecutive monthly rise, and it’s also a record (figure below).
The three-year outlook isn’t much better. The median on that horizon was 3.6%.
This is hardly surprising. It matches up with data from the University of Michigan’s survey and I’d note that expectations came off the boil in the June vintage of that poll, even as inflation remained top of mind.
A quick look at the demographic breakdown in the NY Fed’s survey showed that after falling in April, year-ahead expectations for consumers with a high school education or less jumped to a harrowing 5.6% (figure below).
Notably, near-term expectations for all education cohorts rose in May. Three-year expectations showed the same breakdown — those with the least education expect the sharpest increase in prices.
That’s the “K-shaped” inflation phenomenon I’ve discussed at length here previously. It’s self-referential and self-fulfilling at virtually every turn. Those in lower-income groups are both less likely to have a college degree and more likely to spend a substantial portion of their earnings on the very items for which prices are rising.
Expectations for changes in the price of food, homes and rent hit series highs last month (figure below).
The color accompanying the Fed survey attempted to subtly parrot the transitory narrative. “Notably, medium-term inflation expectations have increased at a slower pace than short-term inflation expectations over the past few months, and the difference between one- and three-year-ahead median inflation expectations marks a series high,” the press release said.
Still, the Fed conceded that macro uncertainty is rampant. “Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—increased sharply at the short- and medium-term horizons,” the same release remarked. “Both measures are well above the levels observed before the outbreak of COVID-19.”
The Fed was also upfront in highlighting the fact that the rise in inflation expectations at both horizons “were particularly pronounced among respondents age 60 and over and among those with a high school degree or less.”
I doubt those particular cohorts will find much solace in BofA’s fund manager survey.