“Market worries surrounding high and accelerating inflation stem from the risk that pent-up demand, strong fiscal stimulus and the Fed’s commitment to keep policy rates on hold will cause overheating,” Moody’s said.
Yet, the rating agency noted that the Fed has signalled it isn’t yet concerned about the threat of accelerating inflation.
“Indeed, the Fed has communicated that it will look through transitory inflation and let inflation exceed 2% until its goal of 2% average inflation over the long run is met,” the report said.
During a recovery, volatile inflation readings are to be expected, Moody’s noted. The rating agency’s baseline scenario is that these current signs of inflation are due to transitory drivers.
“We believe that different inflation measures will be volatile and overshoot the average this year, because of temporary one-off factors,” the report said.
Those factors include base effects from last…