The US Federal Reserve is caught between Scylla and Charybdis

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In this insightful piece by Aegon Asset Management, titled "Macro musings: The US Federal Reserve is caught between Scylla and Charybdis," the author discusses the Federal Reserve's precarious position in handling the trade-off between hiking interest rates to curb inflation and protecting the economy from damage. Drawing a parallel to Homer's protagonist, Odysseus, who chose the lesser of two evils, the author argues that the Fed is likely to continue this approach at the next meeting, with a final 25 basis-point hike on May 3.

Challenges with Healthcare Inflation

While the first paragraph focuses on the Fed's strategic balancing act, the second paragraph highlights a key issue that complicates matters: the stubborn inflation of healthcare costs, which make up nearly 20% of core personal consumption expenditures (PCE). The author points out that the PPI Healthcare Price Index, which uses a similar methodology to PCE calculation, is moving in the wrong direction for the Fed's objectives and implies elevated future levels in the PCE as well.

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