‘The US economy is strong in terms of economic indicators, but dangerous when viewed through inflation glasses.’
These are the summaries of experts’ assessments of the current US economy. Strong US economic indicators have turned red flags on inflation, and there is no reason for the US Federal Reserve (Fed) to stop raising interest rates early for fear of an economic recession. In the minutes of the February Federal Open Market Committee (FOMC) meeting released on the 22nd (local time), Fed officials suggested an additional 0.25 percentage point increase in March, emphasizing the need to be wary of freezing or cutting too quickly.
Immediately after the FOMC meeting, which raised interest rates by 0.25 percentage points on the 1st of this month, the market paid attention to ‘disinflation (falling inflation rate)’. At the time, the observation that the march of rate hikes would stop in March was strengthened.
However, the US unemployment rate announced on the 3rd was 3.4%, the lowest in 54 years, and the number of new jobs was 517,000, exceeding market expectations by more than 300,000. This is why the term ’employment blockbuster’ came out. Subsequently, the US consumer price index (CPI) increase rate announced on the 13th was 6.4% year-on-year, exceeding market expectations (6.2%), and on the 15th, US retail sales surged 3% from the previous month, the largest increase in 22 months. rose to The next day, the U.S. producer price index (PPI), which is called a leading indicator of future consumer prices, rose 0.7% from the previous month, the highest since June last year.
There are signs that the US economy is hotter than expected in all aspects, including employment, prices and consumption. Kurt Rankin, chief economist at PNC Bank, told the Wall Street Journal (WSJ) that “the United States is retreating from the inflation war.”
The market is now accepting interest rates in the mid-5% range as a fait accompli. According to the Chicago Mercantile Exchange’s ‘PedWatch’, the Fed raised the rate by 0.25 percentage point three times in a row through June, raising the possibility that the US benchmark interest rate will rise above 5.25-5.50% from the current 4.5-4.75% to more than 70%. Just a month ago, it was around 4%. It is higher than the 5.0% to 5.25% median of the final interest rate this year, which the Fed predicted in December last year.
As the market accepted the Fed’s prolonged rate hike as a fait accompli, US Treasury yields soared. The yield on the 10-year Treasury bond jumped to 3.92% as of the 22nd from the January low of 3.37%. The two-year Treasury yield, which is sensitive to the Fed rate, also rose to 4.73%, the highest level since 2007.
High-ranking officials of the Fed are warning of wriggling US inflation and emphasizing that they will continue to tighten until they reach the 2% inflation target.
St. Louis Federal Reserve Bank President James Bullard, a representative hawk within the Fed, appeared on CNBC that day and said, “Inflation in the United States could accelerate again.” “Aggressive interest rate hikes can successfully contain inflation. The US base rate should be raised to 5.38% (5.25-5.50%),” he said. President Bullard supports the March Big Step (a 0.5 percentage point increase).
New York Fed President John Williams, who is the third person in the Fed and a close aide to Fed Chairman Jerome Powell, also emphasized at an event that day, “The Fed is absolutely committed to the 2% inflation target.” Previously, Fed Chairman Powell warned in a conversation right after the ‘Employment Blockbuster’ indicator came out, “It will be difficult to reach the inflation target,” and “If the US economic indicators continue to be stronger than expected, we will have no choice but to continue raising interest rates.”
Consumption must continue to support the U.S. economy’s soft landing or non-landing scenario (continuous flight at high altitude without a recession or slowdown). However, concerns are raised that if the US maintains interest rates in the 5% range for a long time, consumption may fluctuate and an economic recession may come. Wal-Mart, the leading retailer in the United States, was concerned about a slowdown in consumption this year, saying, “High-income consumers are moving over to Wal-Mart, which is cheaper.”
New York =
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.