Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Wave of U.S. Inflation Data Reinforces Fed Pivot to Higher Rates

EconomyJan 28, 2022 17:18
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters.

(Bloomberg) -- A slew of U.S. inflation measures out Friday underscored the breadth of price pressures in the economy and reinforced the Federal Reserve’s recent urgency to begin raising interest rates.

The employment cost index, a measure cited by Fed Chair Jerome Powell in December as a key reason for the central bank’s pivot to a more aggressive stance on inflation, rose 4% in the year through December, the most in two decades. 

In another sign of mounting inflationary pressure, a separate Commerce Department report Friday showed the personal consumption expenditures price gauge, which the Fed uses for its inflation target, rose 5.8% from a year earlier, the most since 1982.

“Our view of continued upside risks to inflation into 2022 is reaffirmed by late-2021 data, with core PCE inflation continuing to climb and labor costs rising,” Citigroup Inc (NYSE:C). economists Veronica Clark and Andrew Hollenhorst said in a note. 

The figures show a worsening inflationary environment and come just days after the Fed endorsed plans to raise interest rates in March. Powell also opened the door to more frequent and potentially larger hikes than anticipated, underscoring the challenge the Fed will face this year to keep the broad and sizable price increases from becoming entrenched.

What Bloomberg Economics Says...

The ECI report “turns the chances of a 50-basis point rate hike in March from a remote possibility to something the FOMC will consider seriously. However, it will take additional inflationary shocks for a 50-basis point hike to become Bloomberg Economics’ central scenario.”

-- Anna Wong, economist

For the full note, click here

“There’s a risk that the high inflation we’re seeing will be prolonged, and there’s a risk that it will move even higher,” Powell said during a press conference Wednesday. “We have to be in a position with our monetary policy to address all of the plausible outcomes.”

Central bankers also closely watch long-term inflation expectations to ensure that they remain in line with their target. 

Another report Friday, from the University of Michigan, showed consumers expect inflation to rise 4.9% over the next year, matching the highest level since 2008. Over the next five to 10 years, Americans see prices rising at an annual rate of 3.1%, the highest since 2011. Even so, Fed officials for the most part have said those expectations haven’t been cause for concern. 

But for American families, the rapid price increases have eroded workers’ paychecks and driven up the costs of necessities. Real disposable personal income, or after-tax income adjusted for inflation, fell 0.2% last month, the fifth straight decline. 

The decades-high inflation has driven down President Joe Biden’s approval ratings and caused financial hardship for many families. 

The higher inflation experienced at the end of 2021 is expected to persist into the first quarter, but economists see price pressures easing as the year goes on. While the Fed’s monetary policy tools are one way of addressing inflation, relieving bottlenecks throughout global supply chains will also play a central role in curbing price pressures.

The persistence of recent inflationary pressures are “importantly related to the evolution of global supply factors such as production or shipping bottlenecks and input prices,” according to a blog post from economists at the New York Fed. “Their global nature and their source (that is, supply as opposed to demand) suggest that domestic monetary policy actions would have only a limited effect on these sources of inflationary pressures.”

©2022 Bloomberg L.P.


Wave of U.S. Inflation Data Reinforces Fed Pivot to Higher Rates

Related Articles

Dollar edges back towards one-month low
Dollar edges back towards one-month low By Reuters - May 26, 2022

By Samuel Indyk LONDON (Reuters) - The U.S. dollar edged back towards a one-month low on Thursday, as minutes from the Federal Reserve's May meeting contained few surprises, with...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
Sign up with Email