The U.S. inflation rate soared in January, coupled with the remarks by hawkish officials of the Federal Reserve (Fed), leading the market to speculate that the Federal Reserve (Fed) may raise interest rates by 50 basis points (2 yards) in one fell swoop in March, or even hold an extraordinary event The Federal Reserve raised interest rates urgently. Paul Krugman, a Nobel laureate in economics, said that although the Fed should start raising interest rates, there is no need to use shock therapy. The interest rate futures market has also slowed down expectations of interest rate hikes. to the level before the hawkish officials spoke.
In recent weeks, speculation that the Fed will increase by 2 yards in one go in March has begun to intensify, with comments from St. Louis Fed President James Bullard even more shocking. Bullard said on Thursday after the January consumer price index (CPI) report that he would not rule out an emergency rate hike through a non-routine meeting.
In response to the Fed’s possible actions, Kreuman said on Friday that the U.S. economy is clearly very hot, and the Fed has a responsibility to cool the economy a little, “but what is really needed is definitely not shock therapy (shock therapy).”
Inflation did not create a crisis, he said, allowing Fed policymakers to tighten monetary policy more modestly. “Inflation shows no sign of taking root in the U.S. economy, and the Fed still has room to lead a soft landing in the U.S. economy, but it must start.” A soft landing means that the Fed can stabilize inflation without causing the economy to fall into recession.
Kluman, now a professor at the City University of New York, added that longer-term inflation expectations are still lower than shorter-term values, so there is no need to panic about immediate inflation. Still, the Fed will need to “continue” to raise interest rates until the underlying economic overheating that has fueled price increases subsides.
The Wall Street Journal (WSJ) once analyzed that if the Fed raises interest rates by 2 yards in one go, it is equivalent to shock therapy, which means that the Fed believes that the market does not understand the message the central bank wants to convey, or wants to use it to show that policymakers have changed their minds. The Fed may make this decision as consumer and business expectations for future inflation run out of control.
Expectations for an emergency rate hike in the interest rate futures market eased slightly
After Bullard’s remarks on Thursday, the February Fed funds rate fell to 99.845, indicating a 30 percent implied chance of an emergency rate hike through an unscheduled meeting.
However, according to the latest market quotations on Friday, the February contract quotation returned to 99.9, indicating that the interest rate was 0.10%, which is equivalent to returning to the level earlier on Thursday, when the US Department of Labor announced that the annual growth rate of the CPI in January was 7.5%, which is nearly 40 years. Supreme, while Brad has yet to speak.
Bullard’s stance is hawkish within the Fed, and he has the right to vote this year. But apart from a few absolute hawks among policymakers, centrists are still leaning toward a 1-yard rate hike at the March meeting.