A broad pickup in prices puts pressure on the Fed to raise rates
Nevertheless, optimism that supply kinks would be ironed out by now has vanished. Inflation is even hotter in America than in other countries because of the strength of its rebound, with stimulus payments fuelling demand. And price pressures are getting broader. A gauge of core inflation, stripping out volatile food and energy prices, rose 4.6% year-on-year in October, more than twice its trend rate of the previous quarter-century.
suggest that elevated inflation will continue well into 2022. With wages also rising at their fastest in years, concerns are mounting about a feedback loop, in which higher salaries beget higher inflation.in America. A sharp narrowing in the fiscal deficit will drag on growth in the coming quarters. And crucially, investors still expect the Fed to take decisive tightening action if necessary, which is why longer-term bond yields have not moved much.
Politically, this is treacherous territory for President Joe Biden. His week had got off to a great start with the passage of America’s biggest, shortly after the inflation data were published, he instead chose to adopt a defensive posture. “Inflation hurts Americans’ pocketbooks, and reversing this trend is a top priority for me,” he said.
Yet inflation is, ultimately, out of Mr Biden’s hands. The government can only do so much to paper over. Knowledge that the Fed may feel compelled to raise rates before too long will offer Mr Biden little consolation. Historically, growth cycles tend to come to an end when the central bank tightens policy, so today’s price pressures may augur economic disappointment a little further down the road. Mr Biden, a teetotaller, cannot even soothe his sorrows with a modestly cheaper bottle of lager.
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