What signs of inflation in the United States will lead the Fed to change course?

What signs of inflation in the United States will lead the Fed to change course?

Inflation in united states

(Reuters) – NEW YORK (Reuters) – Investors are on high alert for further signs of inflationary pressure that might push the Federal Reserve to raise interest rates as a result of a larger-than-expected rise in consumer prices in the United States.

The consumer price index report issued on Wednesday, according to some investors, was insufficient to persuade the Fed to change direction. Markets were rocked by the news, which fueled fears that the economy is heading toward persistent higher inflation.

“The debate is whether this round of inflation is temporary or permanent. In the end, only time can tell. “I believe it will be here to remain until labour prices and energy costs stabilize,” Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, said.

“Obviously, this raises the possibility that the Fed may have to adjust its accommodative stance earlier than expected.”

Following the release of a survey by the US Labor Department showing that the consumer price index increased by 0.8 percent last month, the highest rise since June 2009, major U.S. stock indices finished the day down around 2% each. The “heart” reading increased by 0.9 percent, excluding the more unpredictable food and energy portions.

The economy is “hotter than predicted but not overheating,” according to Gregory Daco, chief US economist at Oxford Economics in New York. “I wouldn’t consider this to be a gamechanger because the Fed isn’t going to change its stance based on a single report.”

Investors are looking forward to upcoming economic reports that will help to fill in the gaps in the inflation image, especially the U.S. consumer price data for April, which will be released on Thursday. Wholesale inflation is expected to increase, as it did in March, according to economists.

On Friday, figures for April retail sales, factory productivity, and company inventory will be released.


Inflation watchers are concerned that the economy’s rebound from the COVID-19 pandemic is gaining too much traction. The coronavirus is being vaccinated against in the United States, and several states are removing company prohibitions. In March, stimulus checks were mailed to eligible households, helping to fuel demand.

However, the proof isn’t conclusive. According to Friday’s unemployment survey, employment growth in the United States abruptly declined in April, which is often an indication of cooling activity.


Fed Vice Chair Richard Clarida said on Wednesday that the U.S. economy would take “some time” to recover sufficiently for the Fed to consider withdrawing its crisis-level assistance, and that the price surge will be temporary.


Some market observers observed that Treasuries’ response to the CPI study was more muted than stocks’, implying that Fed watchers may not expect a rate hike anytime soon.

“The theory is that these price hikes are just temporary…. Otherwise, the bond market should be more involved, which it isn’t,” Patrick Leary, chief market analyst and senior trader at Incapital in Minneapolis, said.

By late Wednesday, the yield on 10-year Treasury bonds had risen 7.1 basis points to 1.695 percent, the peak since April 13 and on track for the largest one-day basis point surge since March 18.

Concerns over rising inflation and interest rates have lately harmed certain large-cap growth stocks. This trend continued on Wednesday, with the Nasdaq leading the three global stock indices in terms of losses.

“How long will prices last at their current lows?” analysts wonder. Quincy Krosby, chief market analyst at Prudential Financial in Newark, New Jersey, echoed this sentiment.

She said, “One data release is not going to change the Fed’s stance.” More information is being collected.

She said, “One data release is not going to change the Fed’s stance.” For that to happen, more data would be needed, including “data that shows a stickiness with higher inflation and costs.” We haven’t arrived. We’re all in the throes of recovery.”

In April 2021, the annual inflation rate in the United States jumped to 4.2 percent, up from 2.6 percent in March, and way above industry expectations of 3.6 percent. It’s the highest reading since September 2008, thanks to increased demand as the economy reopens, rising oil costs, and supply restrictions. There’s still a base impact to consider, as the coronavirus pandemic slowed economic growth, causing inflation to rise to 0.3 percent in April 2020. The most significant changes were seen in diesel (49.6% vs. 22.5%), fuel oil (37.3% vs. 20.2%), and used vehicles and trucks (49.6% vs. 22.5%). (21 percent vs 9.4 percent ). Inflation rose for shelter (2.1 percent vs. 1.7 percent ) and new cars (2% vs. 1.5 percent ), and rebounded for clothing (1.9 percent vs. -2.5 percent ), but slowed for medical supplies.