June 25, 2022

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Inflation in the US is taking a new turn: The Federal Reserve has already lost control, says Olaf Chen

Inflation in the US is taking a new turn: The Federal Reserve has already lost control, says Olaf Chen

Recent figures from the US Bureau of Labor Statistics show that the annual Consumer Price Index (CPI) rose 8.6 percent in May, while the revised CPI for energy and food prices (core inflation) rose by six percent.

For overall inflation, that’s the highest annual growth rate since 1981. Inflation was previously expected to remain unchanged at 8.3 percent, according to Bloomberg estimates.

Inflation news bulletins shock waves Through financial markets, the broad-based S&P 500 aggregate index and the high-tech Nasdaq index are both down above 2% at the open.

Inflation figures for May were significantly higher than expected. On the other hand, we believe inflation will peak in the near future, and decline moderately towards the end of the year, says Storebrand Head of Global Pricing and Rates Olav Chen.

Soaring inflation has caused the entry of the US Federal Reserve to real pressure. Because while economic activity is high and unemployment is low, the Fed has now announced that it will tighten sharply to control inflation.

Has the Fed lost control?

The Federal Reserve has already lost control. Chen says they are now fighting the fires and trying to control hyperinflation.

Inflation is a term that refers to the sustainable growth in the general price level of goods and services in a society, in a given period. The unit of measurement is the Consumer Price Index, which has risen sharply over the past year.

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At the same time that inflation soared higher and higher, prospects for global growth declined after the Russian invasion of Ukraine.

The combination of low growth, high inflation and rising interest rates have fueled recession fears among investors, sending the tech-heavy Nasdaq down nearly 30 percent so far this year.

– The screw in the coffin

The US labor market is currently very tight, as it was in March to idle Jobs per unemployed American – the highest level since 1950, when the statistics were first used.

The low unemployment rate has led to a major struggle between companies for employment, which has led to a sharp increase in wage growth over the past year. In May, wages in the US were 6.1 percent higher than a year earlier — the highest growth in decades.

Many experts are now beginning to see trends toward a more comprehensive wage and price spiral in the US economy, writes BloombergIn recent months, inflation has increasingly spread to more goods and services.

To beat high inflation and cool down the temperature in the economy, the Federal Reserve announced that it will raise interest rates at a high pace in the future.

in Minutes From the Fed’s previous interest rate meeting in May, the central bank made clear that it would continue to raise multiple interest rates by 50 basis points simultaneously in the future.

In addition, the Federal Reserve’s interest rate committee said monetary policy may have to move beyond the neutral level, and into the restrictive terrain, in order to slow economic activity and lower inflation.

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Federal Reserve Chairman Jerome Powell warns of sharp monetary tightening ahead, in an effort to rein in inflation.

Federal Reserve Chairman Jerome Powell warns of sharp monetary tightening ahead, in an effort to rein in inflation. (Photo: Jacquelyn Martin/AP/NTB)

The neutral rate level is the level of central bank deposit rates consistent with stable inflation around the 2 percent target over time, as well as equilibrium in the labor market.

Today’s inflation numbers are the nail in the coffin that there will be a minimum of two interest rate increases at the upcoming Fed rate meetings, says Chen.

So far this year, the Fed has raised the interest rate by 0.75 percentage points from zero. According to price statistics from Bloomberg on US policy rate futures, the market believes that the Fed will raise the interest rate to 2.79 percent, during December of this year.

This corresponds to an interest rate increase of just over two percentage points over the course of six months, which will go down in the history books as one of the fastest austerity measures in modern times. (Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.