Fed: Pressure on the central bank is growing as inflation remains uncontrollable

Economists are quickly revising their forecast for the Federal Reserve rate hike after consumer price inflation last week was 8.6% year on year. Now they expect a half-point increase this week and then another half-point in July, after a half-point increase in May and a quarter-point increase in March.

The growth of the monthly CPI is 1%, which corresponds to an annual rate of 12%. The main CPI, which does not include food and energy, grew by 6% per year and by 0.6% per year.

For some economists, this means that the Fed will have to continue to increase by half a point until September. There is even talk of a three-quarter increase on this path, although the Fed has ruled this out in the past.

Unrestrained inflation puts central banks in a hot position, as their main task is to prevent inflation. Fed Chairman Jerome Powell and his predecessor, Treasury Secretary Janet Yellen, both made their wages when they explained how they misjudged inflation, but that didn’t stop prices from rising.

We are increasingly wondering if there will be enough planned activities. Mohamed El-Erian, Allianz’s chief economic adviser and former PIMCO CEO, said on Sunday that the current surge could have been avoided if the Fed had been more modest about its wrong decisions and acted faster.

At this stage, the US Federal Reserve faces a major challenge: to catch up and restore confidence, while rejecting long-term inflation forecasts. A recession that will cause millions of people to lose their jobs is becoming more likely.

Last week, the Atlanta Fed showed that second-quarter GDP growth slowed to 0.9% year-on-year from 1.3% the previous week, a slowdown that could lead to negative growth in the second quarter, a technical definition of a recession.

Even without a recession or a mild recession, many economists now expect a period of stagflation – high inflation and weak growth – that could last at least two years.

Meanwhile, the White House is now talking about how the Fed needs “space” to work, ostensibly recognizing the independence of the central bank. But for some market participants, it increasingly seems that the administration is preparing the Fed to become a scapegoat in the event of inflation.

Confusing message from the ECB about inflation

The President of the European Central Bank, Christine Lagarde, reveals her inexperience in monetary policy, as Europe is facing its own inflationary pressures and will be extremely reluctant to act.

In May, consumer prices in the euro area rose {{ecl-68 ||} by 8.1% year on year, well above the central bank’s target of 2%.

Last week, former ECB chief economist Peter Preth challenged Ms Lagarde for what she saw as a confusing message, first with a very gradual rate hike and then, last year, taking more hawkish views as the ECB promised to do so. start raising rates in July.

“What worries me the most is that Christine Lagarde deviated from what she said a few weeks ago,” Mr Pratt told Bloomberg Television.

In a blog post on May 23, Ms. Lagarde said the rate hike would be gradual as there was no excess demand in the eurozone. Last week, she changed her tune and planned not only to raise the rate by a quarter point in July, but also another increase in September, if necessary, by half a point.

“If you want to be a hawk, then you have to be consistent and say what you want to achieve,” said the former chief economist.

He also accused Ms Lagarde of not knowing what the ECB would do if the bond yield spread between stronger and weaker eurozone economies, a problem inherent in trying to support 19 sovereign governments according to their own borrowing needs.

Leave a Comment

Your email address will not be published.