Fast inflation would accelerate the Federal Reserve’s response
Inflation is out in the open, dominating neighborly conversation (‘Have you seen the price of eggs?”). Meat and milk, tools and travel, cars and cable TV are squeezing the household budgets of Americans.
The Federal Reserve is on guard — readying itself and investors for action aimed at slowing inflation in hopes of not choking off economic growth.
The central bank has set its sights squarely on fighting inflation. It sees higher trending prices to be its most important battle even as the job market continues recovering from its pandemic-induced drop. There is no doubt the Fed has turned hawkish about fast-inflating prices. It gets another look at prices in the week ahead.
On Thursday, the January Consumer Price Index will be released by the Department of Labor. This is the most common measurement of inflation, though the Federal Reserve prefers a different gauge — Personal Consumption Expenditures (PCE).
Inflation likely hit a new generational high last month. Oil prices alone were up more than $10 a barrel in the first month of the year. Fueled by fuel, eggs, homes and cars, prices were up 7% in December compared to a year earlier. That far outstrips the 4.7% increase in average hourly earnings experienced by American workers.
That difference squeezes spending as the dollars do not stretch as far. The shortfall sneaks into financial decisions, affecting spending choices of consumers and companies, leaving the economy gasping for growth.
The Fed wants to overtly act on inflation soon. The central bank is expected to begin raising its target short-term interest rate in mid-March with the goal of slowing inflation before it becomes a more permanent feature of the economic landscape and does lasting damage to the economy.
In the short-term, investor portfolios are captive to just how fast the Fed will act and how high inflation grows.
Tom Hudson hosts ‘The Sunshine Economy’ on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView