High inflation: US Federal Reserve heralds a turnaround in interest rates

High inflation
US Federal Reserve heralds a turnaround in interest rates

The signals are becoming increasingly clear: the US Federal Reserve is preparing the markets for a series of interest rate hikes. The first step could be soon.

Alerted by inflation in the US that has risen to a 40-year high, more and more central bankers are speaking out in favor of a staccato rate hike this year. “I now think that we should maybe take four steps in 2022,” said the head of the St. Louis central bank district, James Bullard, the “Wall Street Journal”. His colleague Patrick Harker from Philadelphia told the Financial Times that he was in favor of a series of three increases that could start in March.

The central bank is focused on pushing inflation back to two percent, stressed the future Fed Deputy Chief Lael Brainard in an already published speech for a Senate hearing planned for Thursday afternoon. At the same time, the central bank wants to maintain the recovery that everyone must achieve. That is the Fed’s most important task, added Brainard. The economist, nominated by US President Joe Biden as deputy to US Federal Reserve Chairman Jerome Powell, is to answer questions from the panel as part of its confirmation process. The long-time Fed director is to replace the current vice-president Richard Clarida. After an affair about securities transactions, this resigns prematurely.

Consumer prices in the world’s largest economy have been rising rapidly for months. In December, the inflation rate was 7 percent compared to the same month last year and thus at the highest level since 1982. Material shortages resulting from the Corona crisis and high energy costs are driving up prices. This can also be seen in the producer prices, which are considered to be an early indicator for the further development of inflation. The prices ex factory gate due for publication in the afternoon are likely to have risen by 9.8 percent in December, if the augurs from the economists’ guild surveyed by Reuters are right.

Several interest rate hikes planned

The Fed had been supporting the economy and markets with massive aid programs since 2020 because of the Corona crisis. In the opinion of many analysts, however, the central bank could raise its key interest rate again as early as March, given the good development of the labor market and growth. This allows the Fed to curb inflation, but at the same time the economy will also suffer from the tighter monetary policy. According to the US Federal Reserve’s December forecast, there could be up to three rate hikes in 2022.

Fed chairman Powell had last signaled to a congressional committee that the very loose monetary policy line would soon be obsolete and that the economy was ready for a tighter monetary policy despite the corona wave. The key interest rate is currently in the range of zero to 0.25 percent.

.
source site-32