With the insistent escalation of inflation still in force and problems such as bottlenecks or the erratic behavior of the labor market shaking prices, the market is already digesting not just one but at least two rate hikes next year by the Reserve Federal.
The CME Group FedWatch, which follows future expectations of monetary policy changes in the United States, indicated after publishing the CPI data for the month of September that only 13.6% of the market considers that the price of money will remain in the range of 0 and 0.25% current at the close of the meeting of the Federal Open Markets Committee (FOMC) on December 13 and 14, 2022.
However, 35.7% glimpse an increase in rates of 25 basis points that would place federal rates between 0.25% and 0.50%. For their part, 32.6% digest at least two over the next year, which would close with rates between 0.50% and 0.75%. 14.3% want up to three turns of the screw of 25 basis points to the monetary crank.
“Inflation reports for the coming months are likely to more or less mirror the CPI report for September, showing continued volatility in transitory components, but a clearer trend of strengthening core inflation. This should keep the Fed going. Federal on the path of preserving the option of rate hikes in the second half of next year “, estimates Veronica Clark, an economist at Citi.
Federal Reserve officials are coming to the conclusion that this “transitional” period of inflation is getting longer and longer . While employment has been the factor that has slowed the start of tapering, inflation has become more difficult to ignore.
For Sarah House, an economist at Wells Fargo Securities, inflation will remain above 5% in year-on-year terms until the first quarter of next year. Although price growth is expected to cool down throughout the year, we estimate that inflation will remain above the Fed’s target throughout 2022 .
Fed Chairman Jerome Powell noted at the September meeting that a “reasonably good” employment report would be enough to start the process of reducing debt purchases, a process known as tapering, as early as the meeting. of November. This is the first step before considering the rate hike and would be completed in the first half of next year .
Although last month’s employment data disappointed, it is true that the monthly average so far this year remains in line with the goal of around 500,000 payrolls per month that Fed officials consider a healthy evolution.
Fed members are looking for a higher average CPI figure before they can actually conclude that they have reached their inflation target, and based on price developments they are about to achieve exactly that in 2022 . There may even be the highest average impressions of the CPI since 1998, according to economists at Nordea. This is a completely new scenario for the Fed and for the markets.