Fed on the egde on rising US inflation


2 June, AtoZForex, Lagos – Economic conditions in the US is on the path of modest growth. Inflation increased slightly further towards the Federal Reserve’s target from April to mid-May. With labor costs also rising. This is the latest information from the Fed’s Beige Book, a collection of personal opinion regarding the state of the economy from business contacts nationwide. It was also pointed out that labor markets appeared to be tightening despite “modest” job growth.

In reference to the U.S. central bank’s 12 regional branches, the Fed said:

“Tight labor markets were widely noted in most districts, price pressure grew slightly in most districts.”

Rising US inflation

With inflation as one of the priority concerns of the US policy makers, the Fed may find comfort in the fact that inflation is on track to rise back to the central bank’s 2 percent target as they try to decide whether its best to raise rates for the first time this year in coming months.

What next for the Fed?

The rising US inflation, therefore, puts the Fed on the edge to raise rates soon. Speaking of the potential for rate hikes in coming months, several Fed members have made it clear that the lift-off is likely to come soon. Fed chair Yellen in a speech last week kept markets expecting rate hikes, without a clear indication as to the specifics of when it will come. Yellen clarified that an interest rate hike is “probably” appropriate in the coming months. However, this is dependent on improving economic data to come.

“It’s appropriate, and I’ve said this in the past, I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate,”

About the pace of raising rates, she emphasized that the Fed needed to avoid raising rates too quickly, to avoid causing a slowdown. She said

“If we were to raise interest rates too steeply and we were to trigger a downturn or contribute to a downturn, we have limited scope for responding, and it is an important reason for caution,” she said.

After her speech, markets started to price in 34 percent and 62 percent for June and July rate hikes respectively, according to data from CME Group.

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