U.S. inflation data like a ‘punch in the stomach’ for the Fed: Citi
[ad_1]
Citi Research global chief economist said that the latest U.S. January inflation data was like “a punch in your stomach” to the Federal Reserve. It raises the possibility of a aggressive 50 basis-point rate rise in March.
The consumer price index for JanuaryAccording to the Labor Department, the price index, which tracks the prices of various everyday consumer goods and measures them, increased 7.5% over the previous year, according to Thursday’s report.
Nathan Sheets, CNBC’s “SquawkBox Asia”, said that today’s inflation data was “a punch in Jay Powell’s stomach” and referred to Fed Chairman Jay Powell.
They believe that the inflation rate will continue to drop as the year progresses. He added that there wasn’t even any hint of this in January’s data.
CPI monthly rates were also higher than predicted. Core and headline CPI both rose 0.6% compared with estimates of 0.4%.
Sheets noted that inflation is still high despite all the problems posed due to the contagious micron variant. More work needs to be done to lower it to 3% this year.
I believe we will also need to see an aggressive Federal Reserve. According to him, after seeing the latest inflation data, it is clear that 50 basis points need to be considered for March. It may not even be enough, he said.
“What will we have to do the rest of this year in order to fight inflation?” Because it doesn’t seem like it’s abating on its own — at least there’s no sign of that yet,” said Sheets.
BoFA, Goldman anticipate seven increases
Goldman Sachs stated that the Fed’s forecast for 2022 included “seven consecutive 25bp rate rises at each Federal Open Market Committee meeting.” This was in line with the inflation data. The bank previously forecast five increases for this year.
We see all the reasons for an increase of 50bp in the rate to March. It is inappropriate to raise the funds rate at this level, which, when combined with hot wage growth, high short-term inflation expectations, means that worries about a wage-price spiral should be seriously considered,” analysts from the firm said.
“We can imagine that the FOMC concludes that there is a substantial risk of an outcome like a wage-price spiral,” they said.
Before the inflation numbers came out, Bank of America predicted the FedThe aggressive rate-hike campaign will be launched this year. It’s economists are expecting seven quarter-percentage-point rate hikes in 2022, followed by four more next year.
Inflation numbers at crossroads in the U.S. Economy with 2021′s rapid growth paceExpected slowdown in this year’s fiscal and monetary stimulus.
Sheets stated that the momentum of the U.S. economic recovery is still weak and will depend on how the omicron factor performs.
“If the Fed is going to get an assist on inflation, it’s got to come from improvements in the pandemic, some rebalancing away from the red hot goods sector into services, and we need to see some attenuation of the still intense pressures in supply chains,” he added.
[ad_2]