U.S. Outlook: Inflation runs hot. Will the Fed?
The urgency to hike interest rates once again is ramping up in the United States on the heels of stronger than expected producer and consumer inflation in January.
January headline and core consumer inflation — at 2.5% and 2.3% from a year ago — hasn’t been this high in five years. Headline inflation’s climb has been even more impressive, climbing swiftly from -0.2% two years ago. Indeed, inflation pressure has visibly accelerated over the past year under a tightening labor market and stronger wage gains, a convincing rebound in energy and commodity prices, and accommodative monetary policy and financial conditions.
For more, see highlights of my weekly report below, followed by a link to the full U.S. Outlook delivered on Feb. 17.Key observations:
- WTI crude oil prices have more than doubled since January of 2016. Goods producers are already feeling the cost pressures.
- With economic slack fading fast and consumer demand solid, price increases at the producer level are increasingly being passed onto the consumer.
- We have been expecting three rate hikes this year since the December FOMC meeting – that hasn’t changed — but we believe a May rate hike is looking more likely than a June hike now that Fed inflation targets could be hit sooner than they forecast.