Inflation in the United States 39letého maxima. According to data published last week, annual inflation reached 6.8% in November. This is, of course, a huge number and, above all, we know that the price level is still rising accelerates. Increasingly, therefore, the claims of transitionality seem meaningless. What does this mean for us anyway?
Risk-on and Risk-off – how to know market sentiment and why is it useful?
The highest inflation in the last 39 years
As mentioned, year-on-year inflation in November was a hefty 6.8%. Between October and November, there was an increase of 0.8 percentage points. It is not a dizzying change, but we can still see from it that inflation has a certain inertia. And that means only the Federal Reserve is completely losing. The joke, of course, is that they didn’t even start fighting.
The US Federal Reserve has only managed to reduce the volume of purchases within Quantitative Release (QE). But as a congressional hearing attended by Fed Chairman Jerome Powell, they are ready to speed up the end of asset purchases. Given the new data, we know it’s almost certain. Therefore, the quantitative release is probably waiting to end already during the first quarter of 2022.
What, but interest rates? There has also been a shift in this regard, as it was during the hearing that the Fed was ready to raise rates. But we can only speculate about the intensity. Again, due to accelerating inflation, we can calculate that the first increase will occur during the first quarter of 2022.
In conclusion
As I have already warned, the next FOMC meeting, which will take place on 15 December, can be a turning point. And inflation is, to a certain extent, such a proxy for how they can decide on future monetary policy.
In any case, the Fed is expected to start a restrictive policy. But only slightly. I don’t expect them to take that leg off the gas completely. If rates go up, only slightly. But that doesn’t mean it can’t have negative consequences for financial markets.
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