Washington: US inflation probably hit the fastest in four decades, helping explain a shift in the Federal Reserve’s approach to monetary policy as well as more consumer anxiety about the economy.
The widely followed consumer price index on Wednesday is forecast to rise 7 per cent for the year through December and climb 0.4 per cent from a month earlier. The following day, another Labour Department report is projected to show prices paid to producers surged nearly 10 per cent in 2021. Reports on December retail sales and industrial production arrive Friday.
Quicker policy normalisation
The inflation surge underscores why US officials are preparing for a quicker normalisation of monetary policy than previously anticipated. Adding to the case is evidence of a tight labour market, including a jump in wages and falling unemployment in data on Friday.
Fed watchers may get more clarity in the coming week on whether the interest-rate liftoff may come as soon as March, and when the central bank will begin shrinking its $8.8 trillion balance sheet.
Chair Jerome Powell testifies Tuesday before the Senate Banking Committee on his nomination to a second four-year term. Two days later, Fed Governor Lael Brainard appears before the same panel at a confirmation hearing on her elevation to vice chair. Other Fed officials set to speak include Loretta Mester, Esther George, Charles Evans and James Bullard.
Hawks to gain control
“With the unemployment rate dropping below the median Federal Open Market Committee (FOMC) participant’s estimate of the long-run neutral rate and wages growing briskly, this jobs report likely will alleviate any lingering doubts on the part of more-dovish FOMC members,” said Anna Wong and Andrew Husby of Bloomberg Economics.
Elsewhere, inflation data may show weakening Chinese price pressures, Germany will give an indication of its growth in the last quarter of 2021, and both South Korea and Romania are likely to keep tightening monetary policy.