The US economy continues to benefit from vaccination rollout and stimulus, with states targeting full reopening by mid-summer. Inflation expectations and long-term interest rates are currently stable, but markets are pricing in higher upside tail risk for both as a result of rising commodity prices and increasing concerns over economic overheating.
The key takeaways are as follows:
Inflation expectations stabilize higher on rising input prices and a dovish Fed.
Markets signal rising tail risk in long-term interest rates, given low real interest rates and high inflation tail risk.
Weak April payrolls are balanced by continued strength in other data.