Fed rumoured to be acting more forcefully as inflation soars

Date:

The Federal Reserve is anticipated to hike the U.S. cost of borrowing faster and farther than previously projected after statistics on Tuesday showed underpinning inflation expanding out rather than decreasing as expected.
According to data from the Labour Department, overall consumer prices increased by 0.1% from July to August, which was more than the 0.1% increase experts had predicted, and by 8.3% from the same time last year.
The report also revealed rising service inflation and a particularly alarming increase in rent prices, which are notoriously difficult for the Fed to control because they fluctuate from month to month.
The key to controlling inflation is keeping housing costs from rising out of control, according to Ron Temple, managing director at the renowned Lazard Asset Management.
However, because rent increases frequently become fixed for a period of one year, Fed rate hikes cannot immediately rein in housing expenses.
The Fed still has a lot of hard work to do.

To combat inflation that has reached historic highs, Fed Chair Jerome Powell & his colleagues have now increased borrowing costs this year more quickly than at any point since the 1980s.
Interest-rate futures traders abandoned any remaining wagers following the release of the report that Fed policymakers will decrease the rate of rate increases when they meet next week.
Instead, they increased their bets on a third consecutive 75 basis point rate increase, which would boost the Fed’s existing 2.25%-2.5% interest rates range to 3%-3.25%.
They also started pricing in a high fed funds rate of 4.25%-4.5% for the beginning of the next year.
The possibilities of a surprise full percentage point increase at the meeting on September 20–21, are now even reflected in rate contracts, and Nomura’s economists indicated on Tuesday that they now think a rate hike of 100 basis points is the most probable consequence.
In a note in which they anticipated the Fed will need to raise its policy interest rate to 4.5%-4.75% by February, Nomura’s economists wrote that markets underappreciate just how deeply ingrained US inflation had also become and the severity of the rebuttal that will likely be needed from the Fed to dislodge it.
Additionally, Nomura predicted an incorrect 100-basis point rate increase for July.
However, Fed policymakers actually raised rates more than they had anticipated at their meeting in late July, in large part due to unexpectedly high inflation data that was released just days before that meeting.
Only one Fed policymaker, Neel Kashkari—the Minneapolis Fed President, predicted rates that high by the end of the year when they last disclosed their policy path estimates in June.
As they intend to keep rising the cost of borrowing until there is a prolonged decline in inflation, which is now running well above the Fed’s 2% target, policymakers have discounted the significance of any one data point.
The August CPI statistics shattered Fed policymakers’ anticipation for the start of a wider decline despite some items’ costs, like airline tickets, declining.
New car and furniture costs increased, as did the cost of food, but core prices—which remove volatile energy and food components—rose 0.6% in August compared to July, exceeding expectations by a factor of two among analysts surveyed.

As a result, the annual increase in core prices—a crucial indicator of how persistent inflation would be—rose to 6.3% from 5.9% in July.
The Fed will need to witness several months of declining inflation before even considering a pause in rate hikes, according to Roberto Perli, a veteran economist at Piper Sandler.
The report was worse than predicted, and it undoubtedly strengthened the Fed’s resolve to remain hawkish.
Perli stated that they are currently not even close.
The Cleveland Fed median CPI, a separate indicator of underlying inflationary pressures, increased more quickly in August than in the previous month by 0.7%, matching a series high set in June.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Share post:

Subscribe

spot_imgspot_img

Popular

More like this
Related

PNC Financial Services Group Faces Earnings Contraction Amidst Strategic Measures

PNC Financial Services Group, a major player in the...

Global Banks Could Unlock $7 Trillion Valuation Boost with Strategic Growth Initiatives: BCG Report

Global banks have the potential to enhance their combined...

African Currencies Face Varied Outlooks Against Dollar: Analysis and Forecasts

As the foreign exchange markets in several African countries...

Yotta’s Strategic Move: A $500 Million Boost for AI Chips from Nvidia

In a strategic move to enhance its AI cloud...