This fuels speculation in financial markets about a 50 basis point interest rate hike next month, when the Federal Reserve’s monetary policy makers meet.
The inflation figure followed a 7.0% advance in December and was the fourth consecutive month of annual increases above 6%. Economists polled by Reuters had forecast the CPI to rise 0.5% and accelerate to 7.3% year-on-year.
The economy is dealing with runaway inflation, caused by a shift in spending from services to goods during the COVID-19 pandemic.
Trillions of dollars in pandemic aid soared spending, which faced capacity constraints as the coronavirus sidelined workers needed to produce and transport goods to consumers.
Skyrocketing inflation has slashed household purchasing power and eroded President Joe Biden’s popularity, even as the economy grows at its strongest pace in 37 years in 2021 and the job market is rapidly creating jobs.
The Fed is expected to start raising rates in March to control inflation, which has exceeded the central bank’s 2% target. Financial markets see a 50% chance of a 50 basis point hike, according to the latest US futures rate quotes.
Market predictions are driven in part by the fact that price pressures are widening, with various measures of wage inflation rising in recent months.
Many economists, however, believe the Fed is unlikely to act so aggressively. Some estimate that the central bank will raise rates by 25 basis points at least seven times this year.
“The Fed does not want to create undue volatility in its first rate hike, which will only make increases more difficult,” said Scott Ruesterholz, portfolio manager at Insight Investment in New York. “Rather, the Fed is more likely to guide an accelerated pace of hikes in back-to-back meetings to crack down on inflation.”
Source: Ambito
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