Pressure on Fed as US inflation rises faster than expected

Pressure on the Federal Reserve to tighten monetary policy is mounting as US inflation rises faster than expected

  • Like the UK, the US has seen inflation rise faster than expected in recent months
  • Rising energy prices hit consumers with rising food and shelter costs
  • The Fed currently has no plans to raise interest rates until next year
  • But the central bank could remove the stimulus sooner than expected

US consumer price inflation rose faster than expected in September as rising energy costs were exacerbated by rising food and rent prices.

The US Department of Labor reported that US consumer prices rose 5.4 percent from the same month last year, while a 0.4 percent increase from August beat market expectations of a 0.3 percent increase.

Stronger-than-expected price growth is putting pressure on the US Federal Reserve’s view that inflationary pressures are a temporary phenomenon. The data will spark interest in the minutes of September’s central bank policy meetings, which are expected later today.

All eyes are on the Federal Reserve and its efforts to contain US inflation

As was the case in Britain, the world’s largest economy has seen price increases in 2021 as businesses reopen due to Covid-19 restrictions and supply chain problems persist.

While the Bank of England has recently hinted that it could raise interest rates earlier than expected in the face of rising inflation, the Fed has indicated that it could begin withdrawing monetary stimulus by the end of the year, but would wait longer to increase its loans. rate.

More than half of the total price increases in the US last month were due to rising costs of shelter and food, which rose 0.4 percent and 0.9 percent respectively in September. The food for home category, which also includes groceries, climbed 1.2 percent.

It follows a warning from the International Monetary Fund on Tuesday, which urged central banks to be “very, very vigilant” about the threat posed by rising inflation.

Responding to the numbers, Wall Street saw mixed results as the day opened, with the Dow Jones falling 0.1 percent and the Nasdaq and S&P 500 rising 0.6 percent and 0.1 percent, respectively.

Chief Investment Officer for Private Banking and Wealth Management at HSBC Willem Sels explained that mounting expectations of a rate hike in the US have pushed government bond yields higher, “hurting” equity markets.

But he expects US inflation to remain high for “several months” before starting to decline early next year, so the Fed will stick to its “transient” stance.

Sels: ‘The risk of this view is that a further rise in oil and natural gas prices could mean that the base effects will not diminish until later in 2022 and that inflation could remain high for longer or even rise slightly further. first, before you come down.

“The markets may therefore remain somewhat more volatile than earlier in the year until we see more evidence that inflationary pressures are indeed starting to ease.”

Chief strategist at Principal Global Investors Seema Shah added: “Today’s number should not move the needle for the Fed. Inflation has already exceeded its target and September’s higher-than-expected CPI only reinforces the need to start tapering.

“November ends, here we come.”