Home » U.S. inflation is “fever”, the risk of the Fed “walking a tightrope” is increasing

U.S. inflation is “fever”, the risk of the Fed “walking a tightrope” is increasing

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Xinhua News Agency, Washington, June 10th (International Observation) U.S. Inflation “High Fever” The Fed’s “Tightrope” Risk Increasing

Xinhua News Agency reporter Xiong Maoling Xu Yuan

According to data released by the U.S. Department of Labor on the 10th, the U.S. consumer price index (CPI) rose 1% month-on-month in May and 8.6% year-on-year. The year-on-year increase has been above 8% for three consecutive months.

The worst inflation in 40 years has not eased even though the Fed has started a cycle of tightening monetary policy and said it would move quickly on raising interest rates and “shrinking its balance sheet”. Economists believe that persistently high inflation has put enormous pressure on the Fed, making it increasingly difficult for the Fed to “walk the tightrope”, and at the same time, the risk of a U.S. economic recession has intensified.

High inflation is difficult to “peak”

Since October last year, the year-on-year increase in the U.S. CPI has been higher than 6% for eight consecutive months. The latest data shows that the year-on-year increase in CPI in May hit the highest since December 1981, and the month-on-month increase was also significantly larger than that in April. Excluding the volatile food and energy prices, the core CPI in May rose 0.6% month-on-month and 6% year-on-year, both higher than market consensus.

Specifically, US energy prices rose by 3.9% month-on-month in the month, a sharp increase of 34.6% year-on-year, the largest year-on-year increase since September 2005. Among them, gasoline prices rose 4.1% month-on-month and 48.7% year-on-year. Food prices rose by 1.2% month-on-month and 10.1% year-on-year, the first time in more than 40 years that the index has risen by more than 10% year-on-year.

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Some economists had previously believed that U.S. inflation may have “peaked” in March, but the latest data shows that this view is untenable.

Sam Bullard, a senior economist at Wells Fargo, told Xinhua that food and gasoline prices are still climbing, and there is no sign of inflation easing for at least the next few months.

According to data released by the American Automobile Association on the 10th, the national average price of regular gasoline that day hit a record high of $4.986 per gallon, an increase of about 14% from a month ago and an increase of more than 60% from a year ago. Oil prices are likely to remain high in the short-term due to lower supply and higher demand leading to higher gasoline prices, coupled with higher crude oil prices.

Desmond Rahman, an economist at the American Enterprise Institute, also said that the recent rise in international crude oil prices above $120 a barrel cast doubt on the view that inflation will peak in the short term.

US Treasury Secretary Yellen said at a Senate Finance Committee hearing on the 7th that US inflation is at an unacceptably high level and is expected to remain high.

Recession risk rises

The latest data suggest the Fed has a long way to go to rein in soaring inflation, while the odds of a U.S. recession are increasing.

At its regular monetary policy meeting in March this year, the Fed raised the target range for the federal funds rate by 25 basis points from a level close to zero, kicking off a tightening cycle to curb inflation. In early May, the Fed announced a 50-basis-point rate hike and hinted that there could be multiple 50-basis-point rate hikes in the future.

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Wells Fargo Securities economists Sarah House and Michael Presser said in a report that May data showed U.S. inflation remained higher than the Fed had hoped, and that the Fed is expected to continue to tighten monetary policy. There is little suspense about a 50 basis point rate hike at the weekly meeting.

As the Federal Reserve takes more aggressive measures to combat inflation, a growing number of economists see the risk of a U.S. recession rising.

Rahman told Xinhua that the decline in stock and bond market prices since the beginning of the year has wiped out about $12 trillion worth of U.S. household wealth, and if it continues, it will increase the risk of a “hard landing” for the economy early next year.

Randall Quarles, former vice chairman of the Federal Reserve, said in an interview with the media a few days ago that considering the severity of inflation and the level of unemployment, the Fed is unlikely to achieve a “soft landing” for the economy, and the result of its policies may be a recession. .

According to a questionnaire for CFOs released by the US Consumer News and Business Channel on the 9th, 77% of the respondents believe that the US economy will fall into recession in the first half of 2023, and none of the 22 CFOs surveyed believe that there will be a recession can be avoided.

Continued high inflation has also put a lot of pressure on the White House. The latest opinion poll by a US political news and poll data aggregation website shows that US President Biden’s approval rate is only 39%, a record low. Darrell West, a senior fellow at the Brookings Institution, told Xinhua that if inflation continues to grow at such a rate, it will definitely damage the Democratic Party’s midterm election prospects in November. (Participating reporter: Matthew Raslin)

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