Powell testifies before the Senate Banking Committee on Tuesday (Getty)
The inflation rate has become one of the most prominent threats facing the American economy, especially with its recent leaps and reaching a record high in 4 decades, which may prompt the Federal Reserve to expedite a decision. interest rate hike On the dollar, by 4 increases during the current year.
Breaks inflation In the United States, the fastest pace in nearly 40 years, last month, as it recorded 7%, amid expectations that the Federal Reserve will accelerate the pace of increasing the yield on the US currency in light of these conditions.
Official data showed, on Wednesday, that the US consumer price index rose 0.5% last December, compared to 0.8% in November, but annual inflation recorded 7%, the highest level since 1982.
Although US President Joe Biden confirmed that the new consumer inflation report is evidence that price jumps have begun to slow, the rise in inflation still dominates the scene in the United States, where the Department of Labor announced, on Wednesday, that consumer prices rose during December by a percentage 7% compared to the same month last year, to confirm that the US economy is in a double quandary, caused by recording the highest rate of inflation in four decades, while efforts to revive the economy following the two years of the pandemic have not yet fully borne fruit.
After a full decade of attempts by the heads of the Federal Reserve (the US Central Bank) to maintain the inflation rate at the level of 2%, most of them only succeeded in a number of months that did not exceed the fingers of one hand, the Corona virus came to exceed its target level, and continues to gradually rise , reaching its highest levels in the last months of last year, due to a rare combination of disruption to the supply chains on which the US economy depends, and trillions of dollars pumped by the government and the Federal Bank over the past twenty months. The annual inflation rate rose from 6.8%, recorded in November, to be the fourth consecutive month in which the rate exceeded 6%.
And in what was considered additional pressure on the Federal Reserve to intervene quickly to limit successive price hikes, the ministry said that the core inflation rate, which excludes highly volatile fuel and food prices, reached its highest level in three decades, recording 5.5% in December. Compared to the same month last year, up from 4.9% in the previous month.
While monetary policy makers at the Federal Reserve are working to prepare markets, investors and citizens to raise interest rates and end quantitative easing policies aimed at stimulating the economy, Jerome Powell, President of the Bank, pledged to put an end to the continuous rise in the US inflation rate, stressing that this will not hinder efforts to revive recovery. The economy and rid it of any negative effects resulting from the spread of the virus in the country over the past two years.
In a hearing before the Senate Banking Committee before the vote to renew his appointment before the end of this month, the head of the world’s largest central bank described inflation as a “serious threat” to the ongoing attempts to revive the American economy, but he stressed at the same time that the current state of the economy It allows “the normalization of monetary policies” for the bank, by moving away somewhat from zero interest rates, reducing the bank’s purchases of bonds, and phasing out the bonds in its budget whose size exceeded 8.5 trillion dollars, noting that “the path to pre-epidemic conditions” It’s still too long.”
Despite the growing concern regarding an increase in the US inflation rate, IMF Managing Director Kristalina Georgieva said that inflation in the United States is likely to slow in the second quarter of this year, following it jumped to its highest level in nearly 40 years.
In an interview with CNBC, she said, “This expectation depends on the extent to which supply chain disruptions are dealt with, and what we see are some positive indications that some progress has been made in this regard.”
In turn, Jeremy Siegel, a professor of finance at Wharton University, described the Department of Labor data released Wednesday, as not as bad as expectations, but he also stressed that it was not good. Siegel drew the attention of his speakers and viewers, in an interview with “CNBC” news channel, that oil prices are currently very close to their highest levels ever, adding that “energy prices fell more than 4% during the last month, in which inflation was recorded. 7%, while expectations say that it will not decrease during the current month,” referring to his expectation that the inflation rate in the current month exceeded the rate achieved in December. Siegel called on the Fed to “deal more aggressively with markets to rein in inflation.”
The veteran professor of finance stressed that the main reason for the high rate of US inflation in this way is the unprecedented increase in the money supply in the economy over a century and a half, stressing that the money supply is currently more than its level at the end of the first quarter of last year by 35%, while it did not There has been a corresponding increase in the supply of goods.
But despite assurances of the Fed’s ability to curb the current wave of high prices and slowing inflation in the United States, Francesco Corto, head of research at DWS Asset Management, believes that although inflation may slow, it is not expected to return to the reserve target. Federal Reserve in the near future.
In an interview with CNBC, Corto said, “Most likely, the requirements for high energy prices to meet the government’s requirements to reduce emissions will prevent inflation from falling toward the central bank’s target.”
“Lower prices will be necessary so that consumers return to spending in light of the ongoing epidemic,” he added, noting that inflation may undermine the purchasing power of consumers following the epidemic.
According to Corto, the most appropriate way to deal with the stock market in the current conditions of inflation is to search for companies that have strong pricing power (a term describing the effect of a change in the price of a company’s product on the quantity demanded of that product).
On Tuesday, in a related context, Jerome Powell seemed confident of the outcome of the vote on his re-appointment as bank chief, stressing that much of the inflationary pressures will disappear on their own “with an expected breakthrough soon in supply chains, and as workers infected with the virus return to their jobs.”
Powell’s words came a few hours following the United States recorded a record level of injuries in one day, exceeding 1.4 million, and rising by the daily average for the last seven days of more than 777 thousand injuries, and supply chain disruptions continue to cause store shelves to be empty of some goods in several states.
Despite the objections of some lawmakers to the renewal of Powell, who is the bank’s first non-economist president in nearly four decades, due to what they consider weak oversight of American banks, and the lack of a clear policy for the bank to support efforts to combat climate change, in addition to what was recently raised On the dealings of some members of the bank’s board in the US stock markets, Senator Sherrod Brown, chair of the committee that questioned Powell, said he did not expect a significant change from the result of the vote taken four years ago when he was first appointed, in which the current president of the bank received the endorsement 84 of the 100 senators voted.
