Big Fed rate hike coming?
US inflation at its highest in 40 years
2/10/2022, 4:21 p.m
Consumer prices in the USA once again rose sharply at the beginning of the year. Over the year, the plus was greater than it had been since 1982. For economists it is clear – it is no longer a temporary problem. Now the focus is even more on the central bank.
Inflation in the US accelerated faster than expected in January. Consumer prices rose 7.5 percent year-on-year, according to the Washington Department of Labor. This is the highest inflation rate since 1982. Analysts had expected 7.3 percent. In December it was still 7.0 percent. Inflation is thus even higher than the US Federal Reserve’s inflation target of two percent.
The Fed has signaled the first interest rate hike in the pandemic for March. She’s getting more and more under pressure. Compared to the previous month, consumer prices rose by 0.6 percent in January. An increase of 0.4 percent had been forecast here.
“So there can be no talk of easing inflationary pressure,” commented Thomas Gitzel, chief economist at VP Bank. The core rate, which excludes volatile energy and food prices, rose more than expected. The annual rate rose to 6.0 percent from 5.5 percent in the previous month. 5.9 percent were expected.
Inflation was mainly driven by groceries, electricity and rents in January; the petrol prices, which rose sharply in 2021, on the other hand, fell. In addition to the continuing supply bottlenecks, experts also refer to the tight labor market. This leads to growing wage pressure. “The original expectation that the price surge caused by the tensions caused by the Corona crisis would quickly evaporate has long since vanished,” commented the Commerzbank analysts. With more and more categories, the prices would rise. This increases the risk that inflation will solidify if values are too high.
Interest rate expectations on the financial markets have recently risen significantly. According to experts, the US Federal Reserve could even raise the key interest rate in a big step by 0.5 percentage points in March.
In March 2020, the Fed lowered interest rates to between 0.00 and 0.25 percent in view of the devastating effects of the corona pandemic on the economy. A massive $120 billion a month bond-buying program was also launched to support the economy. The Fed then began scaling back this bond program last November.