Home » Inflation panic in the US, 75 bp rate hikes are no longer enough? Boom 2-year Treasuries yields of over 4.5%. Buy on dollar, euro at $ 0.9652

Inflation panic in the US, 75 bp rate hikes are no longer enough? Boom 2-year Treasuries yields of over 4.5%. Buy on dollar, euro at $ 0.9652

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Inflation panic in the US, 75 bp rate hikes are no longer enough?  Boom 2-year Treasuries yields of over 4.5%.  Buy on dollar, euro at $ 0.9652

Two-year Treasury rates boom, particularly sensitive to the Fed’s monetary policy decisions, following the publication of US inflation data. The two-year US government bond rates immediately jumped by 19 basis points to 4.48%, before flying further above the 4.5% threshold. 10-year Treasury rates return to exceed the 4% threshold.

The data on inflation in the United States measured by the consumer price index has been published which, in September, rose on a monthly basis by 0.4%, double compared to expectations, accelerating the pace compared to +0.1 % previous one.

The core component – net of the prices of energy and food goods – jumped by 0.6% on a monthly basis, over the estimated + 0.5% and as in September.

On an annual basis, inflation measured by the CPI index jumped by 8.2%, slowing the pace compared to the 8.5% growth of the previous month, but climbing at a rate higher than the + 8.1% expected by the consensus of analysts.

Core inflation also accelerated its pace, from + 6.3% in August to + 6.5%, in line with expectations. It is the 28th consecutive month that the core CPI index has risen, now reaching a record since August 1982.

Dollar boom, with the euro falling by more than half a percentage point, falling to 0.9652. The dollar strengthens against the yen by 0.44% to JPY 147.58.

The trend in the consumer price index confirms the fears of investors (and consumers) related to the flare-up in prices, fueling speculation on interest rate hikes by the Fed which is still very aggressive. On the other hand, the numbers show that, despite the maxi monetary tightening by the American central bank led by Jerome Powell, inflation is not flaring up. The Federal Reserve could therefore lean towards even stronger rate hikes.

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Yesterday the minutes relating to the last meeting of the FOMC, the monetary policy arm of the US central bank, relating to last September 21st, when the main reference rates were raised by 75 basis points, were released, as expected. The American central bank has brought US rates into the range of 3% to 3.25%, a record since 2008, making the third consecutive tightening of 75 basis points.

The minutes revealed that the Fed intends to continue on the path of rate hikes, until the problem of runaway inflation in the United States is resolved.

“The participants (in the FOMC) – read the Fed minutes – believed that the Commission should move towards, and then maintain, a more restrictive (monetary) policy approach, in order to center the mandate of the Commission, aimed at promoting maximum employment and price stability “.

The minutes from the Fed continue, noting that inflation “shows few signs of weakening so far”, a factor that has led FOMC officials to “revise upwards the outlook on the monetary tightening necessary to achieve the Commission’s objectives”.

Inflation, according to the minutes, remained unacceptable high, well above the Fed’s long-term target of 2%.

“Participants noted that recent inflation figures have generally exceeded expectations and that inflation is falling slower than anticipated,” the minutes read again.

After the release of the inflation data, the markets are pricing with a 98% probability the arrival of a fourth monetary tightening by the Fed of 75 basis points in the next meeting on 1-2 November. The probability of a fifth consecutive rate hike of 75 basis points also increases to 62%.

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