Not only did the U.S. avoid recession last year, but the economy is still expanding at a brisk pace, as new data on first-quarter GDP is expected to show later this week. (The Federal Reserve Bank of Atlanta’s GDPNow model suggests growth could come in as high as 2.9 percent). And sales and profit margins are rising, according to a survey of private-sector professionals out this morning. But that April survey, from the National Association for Business Economics, still offers some glimmer of hope to a Fed looking for fading inflation. Almost two-thirds of respondents said they expected their firms to keep prices the same over the next three months after 41 percent raised prices over the previous quarter. And while roughly half of firms reported that input costs had increased, 64 percent of them see those costs stabilizing over the next quarter — a big jump from the previous survey in January. And 67 percent of them said they were passing along some or all of their costs to customers, compared to 72 percent in January, suggesting that firms are feeling less power to keep pushing prices higher. Pay raises may also be poised to slow; 56 percent of survey respondents reported higher wages at their firms over the past quarter, but only 42 percent saw paychecks rising over the next three months, the lowest level since October 2020. “Inflation is still with us but may be easing,” said Carlos Herrera, chief economist at Coca-Cola North America who chairs NABE’s Business Conditions Survey. Everything might not work out perfectly. Investors are now worried that, far from the everything-goes-right scenario that had been sending stocks soaring, growth might slow and inflation might stay higher than policymakers want. Bloomberg News reported last Thursday that a stagflation bet had gained almost 5 percent since the beginning of the month and is set for the biggest monthly gain in a year. But bad news might be good news. Markets Policy Partners said in a note Sunday that stagflation fears actually increase the chances that the Fed will be able to cut interest rates this year. “Stock markets at all-time highs and pushing northward seemingly each session (as we saw over the last three months) by definition loosens financial conditions,” they wrote. “But re-emergent stagflation concerns in April have sparked a reversal, while pushing Treasury yields and the dollar higher — all of which tighten financial conditions and do some of the Fed’s tightening work for it.” HAPPY EARTH DAY — Remember to go outside today. Send tips to your regularly scheduled MM host, Zach Warmbrodt: zwarmbrodt@politico.com, and you can always reach me at vguida@politico.com.
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