With consumer prices in the U.S. rising at the fastest pace in nearly 40 years, the Federal Reserve may announce a faster rate of decline at its meeting next week.
The consumer price index rose 6.8 percent in November from a year earlier and 0.8 percent from October, according to the Department of Labor on Friday. The increase in CPI reflected broad gains in many categories, such as gasoline, shelter, food, and transportation.
“This confirms that the Fed is on track to start raising rates at some point next year,” said Sarah House, a senior economist at Wells Fargo, in a November CPI publication. “I think it will help them see the points go up significantly when we get the forecast next week.”
Officials will conclude their two-day meeting on Wednesday and release a policy statement at 11 a.m. Pacific time, as well as new forecasts on the economy and interest rates.
When they met in September, 18 politicians were divided equally over the need to raise rates from zero next year or 2023. But since then, price pressures have intensified and the labor market has continued to heal from pandemic wounds.
Last week, Fed Chairman Jerome Powell said “now it looks like the inflation-raising factors will continue into next year” and “I think it’s appropriate that we discuss it at our next meeting in pairs.” within weeks, is it advisable to complete our purchases a few months in advance?
The Fed is currently planning to slow down its asset purchase program by mid-2022 to $ 15 billion a month, according to a plan announced in early November. Economists say the November CPI reading indicates that the central bank will announce an acceleration of this rate at its next meeting and decide to raise rates closer to zero as soon as possible.
Interest rate futures are currently showing 67 basis points for the Fed’s tightening next year, which is about 5 basis points lower than before the inflation figures were announced.
“We have our first trip in June; we had September; we recently raised everything to three months, ”said Jennifer Lee, senior economist at BMO Capital Markets. “I think this report puts them basically on that path.”
The Fed has been under both public and political pressure for decades to curb high inflation, but it must balance this with a mandate to ensure maximum employment. The labor market is still close to 4 million jobs less than before the pandemic.
Ryan Sweet, head of monetary policy research at Moody’s Analytics, said that while the Fed may start raising rates next year due to rising inflation, “I don’t think that means the Fed will be overly aggressive.” “Powell wants a long-term economic expansion, and for that, the Fed needs to be a little more patient.”
Earlier this year, economists, including those in the Fed, did not expect rates to rise until the end of 2022 or 2023. But as the pressure on consumer prices continues to rise, that has changed the supply.
“I think their plan is probably to increase the rate three times next year and four times in 2023,” David Kelly, chief global strategist at JPMorgan Asset Management, said in an interview with Bloomberg Television.
“This means that by the end of 2023, the federal funding rate will be between 1.75 and 2%, which is still lower than inflation. So the only thing we want to say is that the Fed is declining here. There are no hawks around. ”
Liz Capo McCormick from Bloomberg contributed to this report.