US inflation at 40-year high - central bank could unpack crowbar

Created: 02/11/2022, 07:58

Experts are speculating whether the US Federal Reserve will raise the key interest rate more than expected in view of the high inflation.

© Anna Moneymaker/AFP

Material shortages and energy costs fuel inflation in the USA.

Experts speculate whether the US central bank is now raising the key interest rate more than expected.

Washington/Berlin - At the beginning of the year, US inflation reached its highest level in 40 years, fueling speculation about drastic interest rate hikes by the Fed*.

Goods and services cost 7.5 percent more in January than in the same month last year, the Labor Department said on Thursday in Washington.

Material bottlenecks and rising energy costs are driving inflation

This is the highest value since February 1982. Even experts were surprised by the power of the new surge in inflation: They had only 7.3 percent on the slip after an increase of 7.0 percent in December.

Material bottlenecks resulting from the Corona crisis and rapidly increasing energy costs are driving inflation to ever more lofty heights.

In view of the strong inflation and the booming labor market at the same time, the Fed is heading for an interest rate turnaround.

Financial markets are expecting a first step up in March, which could be followed by up to five more hikes.

The Fed may even make an unusually large hike of half a point next month.

The probability of this was now estimated at 50 percent on the futures markets after the publication of the surprisingly high inflation rate.

Before the numbers, the rate was around 30 percent.

US: Possibility of more aggressive rate hike increases

A half-point hike would be very unusual for the US Federal Reserve: it usually leaves it at a quarter of a point.

Most recently, in May 2000, she unpacked the crowbar and raised the key interest rate by half a percentage point to 6.5 percent.

The key rate is currently still in the range from zero to 0.25 percent.

The inflation numbers raise the possibility of more aggressive rate hikes, said Naeem Aslam, chief market analyst at brokerage firm AvaTrade.

He expects a total increase of a full percentage point by July.

The pressure on the Federal Reserve to step on the brakes is increasing, says economist Dirk Chlench from LBBW: “There is no sign of inflation abating, inflation is rising across the board.

The workers are left with nothing in real terms from their lavish wage increases.”

Economist: "Inflationary pressure from all corners"

In January, hourly wages increased by an average of 5.7 percent compared to the previous year.

However, they cannot make up for the loss of purchasing power caused by the rapidly rising prices.

“The lid is still not on when inflation rises.

Inflationary pressure is still coming from all corners,” said chief economist Alexander Krüger from the private bank Hauck Aufhäuser Lampe.

This is also shown by the persistently high growth in the previous month.

Compared to December, consumer prices increased by 0.6 percent in January and thus at the same pace as in the previous month.

Fearing more drastic US interest rate hikes*, investors withdrew from the European stock markets.

Government bonds also flew out of the depots.

That pushed yields on the US benchmark 10-year bond to a two-and-a-half-year high of 1.986 percent.

The dollar index, which reflects the course of major currencies, rose up to 0.4 percent to 95.989 points.

*