By Howard Schneider

WASHINGTON (Reuters). Despite consumer inflation in America at unprecedented levels, the Federal Reserve is on course to raise interest rates and implement other measures to curb the rise in prices.

This is the consensus of economists and analysts after year-overyear inflation reached 7% in December. Price rises spread to other goods and services as well, according the Consumer Price Index data (CPI) released Wednesday. Due to wage rises, rising prices for durable consumer goods and ongoing wage hikes, December’s CPI continued pushing up key indicators that Fed Chair Jerome Powell last year said he was monitoring to see whether inflation would ease.

In a Tuesday nomination hearing, Powell said that so far this has not happened.

Graphic: https://graphics.reuters.com/USA-FED/INFLATION/zdpxoqkrkvx/index.html

“Today’s reports continue a trend in inflation prints that remain at multi-decade highs for the near-term and we don’t expect any letup for a couple months,” stated Rick Rieder (NYSE:), BlackRock’s chief investment officer global fixed income.

“Clearly, Fed is taking notice.”

Investors and analysts now expect the U.S. central bank’s policy-setting Federal Open Market Committee (FOMC) to raise its benchmark overnight interest rate from the current near-zero level at its March meeting, and continue with three more quarter-percentage-point increases over the year. The Fed’s policymakers predicted three rate rises in 2022, as they did last month.

Fed officials fell behind on their inflation projections through 2021. As a result, they have increased their plans for raising interest rates and reducing their nearly $9 trillion assets. (Graphic: The Fed’s inflation outlook vs. outcomes, https://graphics.reuters.com/USA-FED/INFLATION/gkvlgxyqnpb/chart.png)

HAWKS INFLATION

The Fed’s headline inflation rate is at “vertiginous levels”, so it will have to be careful not to tighten credit or financial conditions too quickly, as much information about prices and the future of the economy remains unknown.

He wrote that “a chorus of inflation-hawks is expected to howl now at an even greater decibel on the need to have the Fed raise interest rates four to five times this year.”

“We hope that those on (FOMC), will follow a more judicious strategy… We’re in an unusual business cycle marked by unusually fast, sometimes violent, turning points consumption, output and employment… The market forces will reemerge this year to begin cooling inflation.

Powell hopes that too. Fed might be less aggressive if there is more flexibility in supply chains, and workers return to work.

The headline inflation rate is still high but the monthly pace of change decreased in December.

Although the Fed has been under increasing pressure, as well as the political challenges that households face when dealing with higher prices, there is no doubt the peak may already have passed. Cornerstone Macro’s economists stated this week that they expect consumer price inflation to slow down by the year 2022 to only 1.4%. The Fed will raise its rates just twice. A 2% inflation target has been set by the Fed.

Cornerstone economist Nancy Lazar said that the expectation of cooling demand catching up to supply is “not just a forecast”, this week. “Inventories are rising… Production is closer to new orders.”