US consumer inflation, which is at levels not seen in more than a generation, will keep the Federal Reserve on track for interest rate hikes and other expected changes in the coming months to to tame the rise in prices.
That’s the view of economists and analysts, after year-on-year inflation hit 7% in December, the highest since June 1982, as price rises spread across a broader set of goods and services, according to the latest data released this Wednesday (12).
Along with current wage increases and rising costs of consumer durables, December inflation continued to push up key measures that Fed Chair Jerome Powell said he was monitoring to see if the rate will ease on its own.
As he acknowledged at a congressional nomination hearing on Tuesday, so far this has not happened.
“Today’s report continues a trend of inflation readings at multi-decade highs in the short term, and we don’t expect to see any slowdowns for a few months,” said Rick Rieder, director of global fixed income investments at BlackRock.
“Clearly the Fed is on alert.”
Investors and analysts now expect the central bank’s FOMC (Federal Open Market Committee) to raise its benchmark interest rate from the current near-zero level at its March meeting and continue with three more 0 hikes, 25 percentage point throughout the year. Last month, Fed policymakers projected three rate hikes for 2022.
Central bank officials lagged behind their inflation projections through 2021 and, as a result, accelerated their plans to raise interest rates and start slashing nearly $9 trillion in assets. that the Fed has.
Although the December inflation figure was high, the monthly rate of change slowed in December.
Despite pressure on the Fed and a difficult political situation as households grapple with rising prices, the peak of inflation may be over, economists at Cornerstone Macro said this week. They predict consumer price inflation will slow to just 1.4% by the end of 2022, when the Fed will raise interest rates just twice. The bank has an inflation target of 2%.
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