xi's moments
Home | Americas

US Fed's inflation measure hits nearly 40-year high, affirming likelihood of rate hikes

Updated: 2022-01-29 06:16

US Federal Reserve in Washington DC. [Photo/Agencies]

WASHINGTON - A key inflation measure closely watched by the US Federal Reserve rose at the fastest pace in nearly 40 years in December 2021, reaffirming market expectations that the central bank will begin raising interest rates in March to tame inflation.

The personal consumption expenditure (PCE) price index, the Fed's preferred inflation measure, jumped 5.8 percent in December from a year ago, the fastest annual pace since mid-1982, the US Commerce Department reported Friday.

The so-called core PCE price index that strips out volatile food and energy prices, rose 4.9 percent from a year ago, the fastest annual pace since September 1983, well above the Fed's inflation target of 2 percent.

"Inflation is beginning to bite and suppress spending and consumers' assessments of the economy," said Diane Swonk, chief economist at major accounting firm Grant Thornton.

"The challenge now is to tamp down inflation without allowing the flame on the overall economy to go out. There is no road map for doing this after inflation has surged," Swonk said.

The latest inflation data came after the Fed on Wednesday signaled that the central bank is ready to raise interest rates as soon as March to combat surging inflation as it exits from the ultra-loose monetary policy enacted at the start of the pandemic.

The central bank has pledged to keep its federal funds rate unchanged at the record low level of near zero for roughly two years. But many Fed officials have expressed in recent weeks that they would be comfortable with a rate increase in March due to elevated inflation pressures.

"While such a wage-price spiral remains distant, the Fed's clear signal for multiple rate hikes followed by a balance sheet run-off in the second half of the year is an important step to keep inflation expectations anchored," said Tuan Nguyen, US economist at accounting and consulting firm RSM US LLP.

"In the big picture, even with four rate hikes this year, the financial conditions - real interest rates in particular - would still be highly accommodative given the current level of inflation," Nguyen said.

Global Edition
Copyright 1995 - . All rights reserved. The content (including but not limited to text, photo, multimedia information, etc) published in this site belongs to China Daily Information Co (CDIC). Without written authorization from CDIC, such content shall not be republished or used in any form. Note: Browsers with 1024*768 or higher resolution are suggested for this site.
License for publishing multimedia online 0108263

Registration Number: 130349