- Data this week show that inflation in April is still hot and may not have peaked.
- Wall Street observers such as Mohamed El-Erian and Bill Gross say the Fed will need to step up inflation.
- The Fed’s next meeting is in June and it can be seen that interest rates have risen sharply.
Loading Something is loading.
Inflation in the United States is much hotter and in many more sectors of the economy than expected, and the Federal Reserve is under pressure to try to reduce some of these price pressures before causing serious damage to the economy.
This week’s data shows that inflation rose more than expected in April, by 8.3% year on year. This was below the 8.5% increase in March, but above the 8.1% forecast and still at 40-year highs.
Shares and bonds fell and the dollar rose to a 20-year high, backed by investors looking for more juicy returns than they could find elsewhere.
Some market observers believe the Fed has reason to step up interest rates even more, even raising them by three-quarters to try to curb inflation.
Chairman Jerome Powell said this week that the central bank can only control the country’s demand for the equation, not supply, which is a driving factor in rising consumer price pressures.
“Whether or not we can make a soft landing may actually depend on factors we don’t control,” Powell told Marketplace in an interview.
The Fed raised interest rates by 50 basis points in May, the largest increase in a single session in 22 years to quell inflation. The faster cycle of tourism will fight mainly inflation by weakening demand. Powell said further interest rate increases of 50 basis points were likely to follow the central bank’s political meetings in June and July, but he rejected the increases of 75 basis points.
Economists such as Mohammed El-Erian disagreed and called on the Fed to act more aggressively, with Bill Gross and Liz Young saying the Fed would be encouraged to do more to control inflation.
Here is what a number of market experts think:
Mohamed El-Erian, Chief Economic Adviser at Allianz
Mohammed El-Erian, an economist and outspoken critic of the Fed, called on the Fed for its slow response to inflation and urged it to do more.
He said the Federal Reserve must be honest about curbing rising inflation and must keep options open for bigger interest rate hikes.
“The Fed needs to be a little more open right now, not just trying to give us good news. Be brutally honest,” El-Erian said in an interview with CNBC’s Squawk Box on Wednesday.
“They need to be more modest. “They can’t take anything off the table,” he said. “You can’t say the 75-basis point is off the table.”
Bill Gross, billionaire investor and co-founder of PIMCO
“It is unknown at this time, but I suspect that 3-4% of the CPI is where we are settling, in the absence of ongoing hostilities in Ukraine. The Fed has more firewood to cut if it wants to return to the 2% level. “
The “king of bonds” used to be cautious about raising the Fed’s interest rates too aggressively and risking a recession.
Peter Schiff, Chief Economist and Global Strategist at Europac
“The CPI for April rose by 0.3% more than expected, with the core growing by 0.6%. Stocks and bonds are selling out as investors realize that the Fed needs to fight harder to beat inflation. What they don’t realize is that inflation has already won and the Fed will soon stop pretending to fight it. “
Liz Young, Head of Investment Strategy at SoFi
“CPI + 8.3% on an annual basis is lower than last month, but not low enough. We are still in the midst of this. The Fed has no reason to stop, so the market still has no reason to calm down.”
Strategists from Bank of America
“This report leaves the Fed calm with pre-loaded interest rate increases in the short term. Bank of America believes that the risks of an increase of 75 basis points are still low.
“But obviously this report is contributing to the debate in the field.”
Goldman Sachs strategists
“We expect a significant slowdown in growth, with inflation remaining well above target, so central banks are likely to continue to rise.
“Tightening the wider financial environment means the Fed is likely to have to be less restrictive in its political stance than previously thought.”
Seema Shah, Chief Strategist at Principal Global Investors
“We expect core inflation to disappear by only 5.5% by the end of the year. With companies still showing impressive price power, inflation expectations have risen, the labor market is hot and sustains strong wage growth, and inflation continues to rise, pressure on the Fed will remain intense. A few more prints like this and a 0.75% increase could be returned to the table. “
Richard Flynn, Managing Director, Charles Schwab, UK
“Growth weakened in the first months of 2022. During the pandemic, the two-goal boost from high government spending and loose monetary policy kept the economy afloat. This stimulus has now been reversed; The Fed has launched a series of aggressive interest rate hikes in a bid to tackle inflation, which is likely to put additional pressure on consumer demand and economic growth. The negative effects of high prices are not in the rearview mirror. “
Sylvia Dal’Angelo, Senior Economist, Federated Hermes
“Today’s inflation will do little to ease fears of financial market stagnation. Inflation is likely to remain volatile in the coming months, which means that uncertainty about inflation and the Fed’s response will persist, leading to increased market volatility. Today’s report will also strengthen the decision to tighten aggressively at its upcoming meetings, crystallizing expectations for increases of 50 basis points in June and July. “
Add Comment