Parade of blowout data shows America’s shift into a higher economic gear – how long will it last? After being disrupted by rough winter weather in February, America’s economic pace quickened in March.  Retail sales surged 9.8%, weekly jobless claims fell below 600K for the first time since the onset of the pandemic and regional Fed manufacturing surveys from New York and Philadelphia showed strong upticks. The inflation boogeyman reared its ugly head too, with the Consumer Price Index rising 2.6% at the headline level and 1.6% stripping out food and energy. Bottlenecks in the production cycle will continue while YOY data comparisons feed through to inflation readings in the coming months.

Our take:  The overall tone from the latest round of data releases signals a swift reopening of the economy is indeed at hand. However, like we said last week, don’t let the blowout numbers fool you into thinking that early positive growth numbers will push inflation – and interest rates – notably higher over the long haul or that we’re in the midst of a growth wave in excess of where we’d be had the pandemic never happened.

In our opinion, there is little utility in drawing conclusions from comparisons of economic data from the current fiscal stimulus-soaked economy entering the fastest quarter of growth since 1978 against the record deep recession of a year ago. The comparisons will only get starker (and less useful) in the coming months. The same logic should also be applied to signals implying that inflation is rising to any worrying degree. Consumers – who alone are responsible for ~70% of US economic activity – are indeed seeing higher prices at the pump and some reacceleration in prices for both goods and services. Is it indicative of higher inflation? No.

Economic activity and the labor market are vigorously rebounding, but rising prices are a mere reflection of post-pandemic stabilization rather than sustained reacceleration. What could drive prices notably higher on a sustained basis is only one thing:  higher wages. Consumers wages have been stagnant for years, and the underlying dynamics of the jobs market – where almost nine million people are still unemployed when compared to the start of the pandemic – implies that we will not see any real change in wages and by extension, in the inflation picture until the excessive labor slack is mostly reabsorbed. If you want to get a sense of where rates are headed in the long term, look no further than the jobs market.

While its certainly true that overall inflation is moving higher – look no further than elevated demand and localized supply-chain disruptions creating price spikes – it’s only a moderate acceleration for the time being. The Fed agrees – it has said repeatedly that it will look through these so-called “base effects” in deciding when to take away the easy-money punch bowl.

Think LIBOR’s transition to SOFR is a done deal? Think again. Zions Bancorporation (NASDAQ: ZION) announced its intent to adopt AMERIBOR® – a floating rate alternative to SOFR – as a replacement index for LIBOR for the largest portion of its non-syndicated commercial loans currently indexed to LIBOR. Many regional and community banks have real issues with SOFR – specifically that it does not contain a credit component and that there is only a nascent forward curve at present – prompting them to seek alternatives to LIBOR’s anointed replacement. Why you should care: At the end of the day, the post-LIBOR lending world could be made up of a spectrum of floating rate indices, AMERIBOR and Bloomberg’s Bank Yield Index (BSBY) among them, resulting in more efficient pricing of floating rate loans amid a choice of indices that better reflect a lender’s cost of funds. Are you contemplating a floating rate loan? What does the loan agreement say about LIBOR’s sunset? Get educated here.

Support for Biden’s infrastructure plan is waning. According to a CNBC poll, President Biden’s proposed infrastructure program is proving much less popular with the public than the recently passed coronavirus recovery plan. Thirty-six percent support infrastructure spending while 33% oppose. In contrast, about twice as many favor the recently passed American Recovery Plan than oppose it. Why you should care: Any delay or watering down of the plan will help erode upward momentum of long-term interest rates.