Rising Inflation Signals Further Rate Hikes from the Fed
By Investors had been expecting that the Federal Reserve (Fed) would not raise interest rates at its upcoming meeting after raising them by a quarter of a percentage point at the last meeting earlier this month.[0] However, signs of persistent inflation suggest that the Fed will continue to increase rates. Several Fed officials have voiced concern that inflation has not been subsiding quickly enough, implying that the central bank will continue to hike rates.[1]
Kurt Rankin, PNC senior economist, said that the “renewed inflationary pressure” will “force serious consideration of adding another rate hike in the first half of 2023,” in line with the Fed's signals that it does not view inflation as an extinguished threat.[0] CME Group’s FedWatch tool, which calculates the probability of rate hikes via futures contract prices, shows that the odds of the Fed holding off on a rate hike in March are at 0%.[0] Around 82% of investors predict a quarter-point increase, while 18% are expecting a rate hike of half a point.[0]
The yield on the 10-year Treasury note has risen from 3.4% on February 1 to 3.91% mid-morning, closing the week at 3.83%.[1] The producer price index rose 0.7% in January, which is the highest rate of inflation in seven months, and translates to an annual rate of 9%.[1] Annual inflation fell to 6%, slightly less than expected.[0] These figures suggest that the Fed will continue to increase rates in order to contain inflation.
0. “Dicey inflation news raises odds of drastic move by Fed that could spell recession” Washington Examiner, 19 Feb. 2023, https://www.washingtonexaminer.com/policy/economy/dicey-inflation-reports-recession-odds-fed-rates
1. “Week Ahead: Inflation To Stay in Focus This Week – Alpha Profit” Christophe Barraud, 20 Feb. 2023, https://www.christophe-barraud.com/week-ahead-inflation-to-stay-in-focus-this-week-alpha-profit/
