Amid signs that economic growth is picking up (setting aside the weak first quarter that many have chalked up to the harsh winter) and a steadily improving labor market, inflation remains the missing piece of the puzzle for Federal Reserve Chairwoman Janet Yellen.
Last week, Yellen noted that "inflation has been quite low even as the economy has continued to expand." In the most commonly cited measure of inflation, the Consumer Price Index, inflation was running at only 1.5 percent annually in March, up from 1.1 percent in February. Over the past two years, inflation has steadily trended down.
That's problematic, because in theory a cyclical recovery should involve prices increases moving toward the Fed's 2 percent target -- not disinflation. Yellen noted that continued weak inflation "could pose risks to economic performance, and we are monitoring inflation developments closely," but explained that some of the factors contributing to the softness in inflation over the past year such as the declines in non-oil import prices will probably be transitory." Both she and her predecessor Ben Bernanke have long predicted that low inflation is only temporary and not a major concern.
This week could bring signs of the rising inflation Yellen is looking for and expecting. On Thursday morning, the Bureau of Labor Statistics will release the CPI for March, and economists expect an uptick in inflation. On Wednesday, the BLS will also report on the Producer Price Index, a measure of inflation based on prices received by producers.
This week could be an important one in determining the fate of the bailed-out government mortgage businesses Fannie Mae and Freddie Mac. The Senate Banking Committee was supposed to vote in late April to approve a bipartisan bill that would have replaced the two companies with a system of private capital for mortgage-backed securities, backed by an explicit government guarantee.
That vote was postponed to allow more time to win support from Democrats on the committee. Chairman Tim Johnson, D-S.D., and ranking member Mike Crapo, R-Idaho, insisted that they had enough votes to advance the measure, but wanted greater support from the committee.
Last week, however, Bloomberg reported that six Democrats on the committee said that they wouldn't vote for the measure. Those Democrats included Chuck Schumer of New York and Elizabeth Warren of Massachusetts. Majority Leader Harry Reid has indicated he wouldn't bring the measure up for a vote in the Senate without strong support from Democrats.
The next two weeks, before the Senate goes on break, could prove crucial for the fate of housing finance reform. Already, analysts say there is little chance of an overhaul becoming law before the election. But the Johnson-Crapo measure was set to become the template for reform if passed in the Senate, but even that possibility would become doubtful if it loses momentum to simply pass the committee.
The Peter G. Peterson Institute will hold its fiscal summit Wednesday in Washington, featuring big political names including Bill Clinton and New Jersey Gov. Chris Christie, as well as current legislators such as Senate Budget Committee Chairwoman Patty Murray, D-Wash., House Democratic Minority Leader Nancy Pelosi and Sen. Rob Portman, R-Ohio.
On Thursday, Yellen is scheduled to give an address about small businesses and the economy at the Chamber of Commerce in Washington.
On Friday, the Census Bureau will report on new housing starts for April. Starts are expected to pick up from 946,000 in March to 980,000.