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Fed chair Jerome Powell attempts a high-wire circus act on inflation

Fed chair Jerome Powell is attempting something of a high-wire circus act as the central bank pushes forward with its average inflation targeting regime.

The big picture: He's trying to simultaneously raise inflation while keeping short-term interest rates low and stimulate the economy through unprecedented and extraordinary measures while convincing Americans the economy is doing well.

Driving the news: The Fed kept its policy rate unchanged on Wednesday but sharply ramped up its expectations for economic growth — while affirming that it does not plan to raise interest rates until after 2023.

Why it matters: U.S. inflation expectations have shot up in recent months while unemployment remains incredibly high, a potentially devastating combination for the economy.

What we're hearing: "The Fed released its new framework last year and it’s showing that it means it," former Fed economist Claudia Sahm tells Axios.

  • "Always in the past, expected inflation was what drove the Fed to say, 'Whoa, we’re going to ease up here and in fact might tap on the brakes.' That’s always been how the Fed worked."
  • Now the Fed is "showing that it's not all about inflation, and it’s not about expected inflation. It’s about jobs and inflation and with the inflation, we have to see a sustained period of inflation above 2% before we’re going to pull back."

What's happening: That new framework is pushing investors and they're pushing market gauges of inflation like the 10-year Treasury yield to 1.74%, its highest in more than a year, and 5-year breakeven rates to their highest level in nearly 13 years.

  • Consumers, seeing consistently higher food, gas and auto prices, as well as increasing mortgage and loan rates also are predicting rising inflation, with a recent New York Fed survey showing the highest consumer inflation expectations in seven years.
  • Google searches for inflation have jumped to their highest since record-keeping began in 2008, according to Deutsche Bank research.

Yes, but: While Powell has been content to let longer-term interest rates, which correspond with consumer products like mortgages, rise higher, he has fixated on keeping short-term rates, which correspond with the cost of borrowing for banks and large financial institutions, low.

  • By insisting that the Fed isn't even thinking about thinking about raising rates, yields on short-dated Treasuries fall because they are closely tied to Fed policy.

The bottom line: "They’ve masterfully navigated this meeting by sounding somewhat optimistic on the economy but staying dovish on the policy path," Subadra Rajappa, interest rates strategist at Société Générale, tells Axios.

  • "If the Fed were to even suggest they’re hiking soon the market will quickly price in multiple hikes and that would be much more negative for the economy."

Gas prices rise in several states as pipeline outage crimps supply

Gas stations in several statesare out of fuel and AAA reports the nationwide average price breached $3-per-gallon for the first time in six years amid the cyberattack-induced shutdown of the Colonial Pipeline.

Driving the news: The ransomware attack on Colonial Pipeline, the nation's largest refined fuel pipeline that extends from Texas into the Northeast, is creating a scramble as the outage persists into its sixth day.

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Read: What Liz Cheney told the House GOP behind closed doors before her ouster

"If you want leaders who will enable and spread his destructive lies, I’m not your person, you have plenty of others to choose from," Rep. Liz Cheney (R-Wyo.) told House Republicans before they voted to remove her as the party's conference chair on Wednesday.

Why it matters: In her address, Cheney promised that she "will be leading the fight to restore our party" and make it "worthy again of being the party of Lincoln," signaling that she doesn’t plan on going anywhere soon and will continue to be a voice of dissent in the party.

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Biden names third slate of judicial nominees

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Why it matters: The administration described the most recent picks as an embodiment of "the diversity of our nation," and said that Biden is continuing a trend of announcing judicial nominees at a record pace.

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Consumer prices jumped 4.2% in April compared to last year

The latest gauge on inflation released Wednesday morning showed that prices rose 4.2% over last year, based on the Consumer Price Index (CPI).

Why it matters: The gains were highest since September 2008. Prices jumped significantly compared to the start of the pandemic last year, when lockdowns drove down demand.

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What China's population woes mean for the rest of the world

China released its censusreport on Tuesday, showing that the number of births in the country last year dropped 18% from 2019. And China isn't alone — populations have been stagnating globally for decades, including in the U.S.

Why it matters: China has long relied on its large population — the biggest in the world — as a core engine for economic growth. The way that it, and officials across the globe, deal with changing demographics will lead to shifts in the economy and geopolitics.

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Inside Liz Cheney's plans to continue fighting for soul of GOP after leadership ouster

As she faces a voteto be thrown out of House Republican leadership, Rep. Liz Cheney has told associates she doesn’t plan on going anywhere — and plans to run for re-election.

What to watch: In the meantime,as she sees it, she will aggressively pursue a fight for the soul of the Republican Party, after an expected vote to strip her of her post as GOP conference chair, the party's No. 3 House post.

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Biden plans to send envoy as Israel and Hamas escalate toward war

Tel Aviv — With Israel and Hamas now engaged in their most destructive fight in seven years, the Biden administration is considering plans to dispatch a State Department official to join the de-escalation efforts, five Israeli officials and Western diplomats tell me.

Driving the news: The fighting intensified overnight, with Hamas and other militants firing a second barrage of over 100 rockets toward Tel Aviv and other nearby cities, and Israel continuing its air campaign in the Gaza Strip by destroying high-rise buildings, Hamas facilities and rocket units.

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