US inflation is falling more slowly than expected, raising concerns about long-term fixation of high inflation. It is also predicted that the US Federal Reserve will raise interest rates by June.
The U.S. Consumer Price Index (CPI) increase rate announced by the U.S. Department of Labor on the 14th (local time) was 6.4% year-on-year, higher than the market expectation (6.2%), and the month-on-month increase rate was 0.5%, the first three months since October last year. highest during
As a result, market observers are raising expectations that the Fed will raise the rate by 0.25 percentage point three times in a row in March, May and June. According to the FedWatch of the Chicago Mercantile Exchange, which shows the forecast of the benchmark interest rate through futures trading on the morning of the 15th, the probability of the Fed raising interest rates in June rose to 52.2%, exceeding the possibility of freezing or lowering them. Concerns have grown that the interest rate could rise by more than 5.25-5.50% in June from the current US base rate of 4.5-4.75%. That’s above the Fed’s projected rate range of 5.0% to 5.25% at the end of this year. At the Federal Open Market Committee (FOMC) meeting on the 1st of this month, the market considered March as the end of the hike, and put weight on May after the announcement of the US’employment explosion’ indicator on the 3rd. Following this, the observation of the end point was pushed back until June due to concerns about the prolonged high US inflation.
On this day, Patrick Harker, president of the Federal Reserve Bank of Philadelphia (Federation), said in a lecture at a university that the benchmark interest rate should be raised above 5%, saying, “Inflation is not going down fast.” New York Federal Reserve President John Williams also emphasized that “inflation is still too high” in a speech at the New York Banking Association.
Treasury yields jumped on the same day on the possibility of prolonged tightening by the Fed. The 6-month US Treasury yield exceeded 5% for the first time in 16 years since July 2007, and the 2-year Treasury yield, which is sensitive to the Fed rate, exceeded 4.6%.
Some point out that the Fed’s 2% inflation target itself is wrong. Mohamed El-Erian, chief economic adviser at Allianz, said, “It is highly likely that the US inflation rate will remain stuck at 3-4%. It will be difficult for the Fed, which promised 2%,” said Harvard University professor Kenero Rogoff in an interview with Bloomberg TV, saying, “The Fed should have set a target of 3%. The risk of a recession would have been low if the target was set high,” he criticized. However, he added that it was too late to raise the target now because the market’s confidence was at stake. In a recent interview, Fed Chairman Jerome Powell reiterated that “2% is the global standard” and “will not change the target” when asked why the 2% target is the target.
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Source: Donga