Jakarta –
Inflation in the United States (US) in May 2022 reached 8.6%. That figure is the highest since December 1981.
The blazing pace of inflation fueled bets that the Federal Reserve will become more aggressive in trying to cool the pressure on the pace of rising prices. One way to do this is by raising the benchmark interest rate higher in the next few months.
Fed policymakers have promised to raise interest rates by half a point at their meeting next week and at the end of July.
But that would be more policy tightening in three months’ time than the Fed did in 2018.
On Friday last Friday, the futures trading market which is very sensitive to interest rates began to have an effect.
A separate survey from the University of Michigan showed long-term inflation expectations rose to their highest level since 2008.
Prices for Fed funds futures contracts now reflect a better chance of a 75 basis point rate hike in July.
The yield on the two-year Treasury, seen as a proxy for the Fed’s policy rate, hit 3% for the first time since 2008.
“We believe that today’s inflation data is a game changer that will force the Fed to shift into higher gear,” wrote Barclays economist Aneta Markowska at Jefferies.
Most economists still predict a 0.5% increase in US interest rates next week. Then for the next meeting, it will also increase in the same amount, at least until September 2022,
Core inflation in the US alone hit 6% in May, down slightly from April’s 6.2% position. However, the figure is still far from the expectations of Fed Chair Jerome Powell.
“Any hope that the Fed can reduce the pace of rate hikes after its June and July meetings now appears to be a long blow,” wrote Bankrate chief financial analyst Greg McBride.
Economists at Deutsche Bank concur, and say they now expect interest rates to rise to 4.125% by mid-2023.
(the/dna)
–
