The figure represents a new blow to the government of President Joe Biden, who has been trying to curb inflation for several months and will face crucial mid-term elections in November, in which control of Congress and numerous governorships will be at stake. According to a recent poll, 64% of Democratic voters do not want him to fight for re-election in 2024.
gasoline and food
The main driver of the trend was energy prices, which increased 41.6% in the last twelve months, which is their highest rise since April 1980.
According to the United States Energy Agency (EIA), the average price of gasoline in the United States last month exceeded 5 dollars per gallon (about 3.8 liters), an unprecedented nominal value.
Food prices, meanwhile, experienced their biggest rise since February 1981, with an increase of 10.4% in one year.
Both items have registered a sharp rise due to the instability generated by the Russian invasion of Ukraine in February.
In addition to eroding the purchasing power of Americans, rising inflation poses a threat to growth as consumption is the main engine of the world’s largest economy. Likewise, it hits the popularity of Biden, a few months before the mid-term elections.
“While the headline inflation record is unacceptably high, it is also out of date,” the president defended in a statement. “These figures do not reflect the full impact of nearly 30 days of falling gasoline prices,” he stressed.
Fees
Analysts yesterday increased their bets that the Federal Reserve could offer a larger-than-expected interest rate hike.
The consensus so far pointed to a 75 basis point hike in the benchmark rate at the next Monetary Policy Committee meeting on the 26th and 27th of this month, after an increase of a similar size at its last meeting in June. Now, however, Fed policy rate futures traders are pricing in a more than 40% chance of a 100 basis point hike.
The slight decline in so-called core inflation, which excludes food and energy prices, to 5.9% in the 12 months to June from 6% in May is smaller than economists had expected. It also offers little comfort to Fed Chairman Jerome Powell, who is likely to focus more on the continued rise in so-called headline inflation.
Those price pressures are fueling concerns that if the Fed doesn’t start reining in inflation soon, business and consumer expectations of a torrid rate of future price increases could take hold, forcing the central bank to act. even more aggressively.
“It really pushes the Federal Reserve even further into the corner that it has been operating in. It needs to raise rates quickly and it needs to do so in large proportions,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance. “Unfortunately we were looking for good news and this is not good news.”
Recession
Rising inflation and the likely response from the Fed in its attempt to quell it raises the likelihood that the central bank will brake too hard and push the economy into recession, according to a growing number of analysts.
“For the Fed, this latest reading is a long way from ‘convincing evidence’ that inflation is coming down,” said Gregory Daco, chief economist at EY-Parthenon. “Overall, we believe the US economy is headed for a mild recession.”
The Fed began tightening monetary policy in March and has already raised its benchmark overnight lending rate by 1.5 percentage points. Financial markets now predict that the rate will reach the range of 3.5%-3.75% by the end of the year, above what the Fed officials themselves forecast just three weeks ago.
So far, a very tight job market has resisted those rapid rate hikes, and unemployment remains at 3.6%, near a record low.
Source: Ambito
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