(Washington Watch) US 2022: Inflation "high fever" continues
China News Agency, Washington, December 16th, title: United States 2022: Inflation "high fever" continues
China News Agency reporter Wang Fan
The U.S. has suffered its worst inflation this year in 40 years.
The consumer price index (CPI), a widely-watched inflation indicator, has remained at a high level of over 7% after reaching a peak of 9.1% in June. The continued "high fever" of inflation has put pressure on the economy.
In order to curb inflation, the US Federal Reserve Board began to raise interest rates in March this year, and launched a plan to reduce the size of its balance sheet in June.
So far, the Federal Reserve has raised interest rates by 425 basis points, and the target range of the federal funds rate has risen from near zero at the beginning of the year to between 4.25% and 4.5%.
The aggressive monetary tightening policy has brought inflation to an inflection point, but it is still far from the long-term goal set by the Federal Reserve.
At the same time, many officials are worried that the failure of monetary policy will prevent the economy from achieving a "soft landing".
Market fears of a recession are also growing.
soaring prices
In the early days of the impact of the new crown epidemic in the United States, government relief measures and the huge amount of liquidity released by the central bank were "two-pronged", allowing businesses and families to maintain normal work and life.
However, this has also had an impact on the supply and demand balance of the market over the years.
By February this year, this situation was superimposed on the impact of the Russia-Ukraine situation, exacerbating the imbalance between supply and demand in the market, leading to a sharp increase in commodity prices.
Food prices, which are at historically high levels, have become the most concerned issue for the American people.
According to the American Farm Bureau Federation, the average price of a dozen Grade A eggs more than doubled in November from a year earlier, a pound of frozen peas was up 23 percent and a gallon of whole milk was up 16 percent.
In addition to food, the prices of necessities such as transportation, accommodation and heating resources have also soared from a year ago.
The average price for natural gas delivered to power plants through this summer was $8.81 per million British thermal units, compared with $3.93 last year, according to the U.S. Energy Information Administration.
According to the latest survey results released by Gallup, 55% of Americans believe that rising prices have caused their families to face financial difficulties, which was 45% a year ago.
Even among high-income groups who are "least likely to be negatively affected by high prices", 42% of people feel the burden of high prices, significantly higher than 28% a year ago.
Inflation hits harder for low-income groups.
According to calculations by financial and economic intelligence provider Moody’s Analytics, the average American household would have to pay an extra $445 in September to buy the same goods and services as a year earlier.
The financial stress experienced by households earning less is evident.
Unstoppable inflation
The Fed raised interest rates for the first time in more than three years in March this year.
In a statement issued after the regular monetary policy meeting, the Federal Reserve stated that it hopes to bring inflation back to its 2% target by appropriately tightening its monetary policy stance.
Earlier, the U.S. Department of Labor announced that the February CPI rose by as much as 7.9% year-on-year.
However, after the rate hike, the CPI continued to rise, and the CPI rose by 8.5% year-on-year in March.
On May 4, the Federal Reserve announced a 50 basis point rate hike, which at the time was the largest rate hike since 2000.
Since then, various data have shown that the upward pressure on inflation has not slowed down.
Immediately afterwards, the Federal Reserve raised interest rates by 75 basis points four times in a row, during which CPI reached a peak of 9.1% in June.
It was not until the release of CPI data in November that there was "the strongest evidence so far" of a steady slowdown in U.S. inflation, including a year-on-year increase in CPI that fell more than expected to 7.1%, and a month-on-month increase in core CPI that returned to the pre-epidemic normal of 0.2%.
However, Goldman Sachs Group pointed out that falling inflation and "returning to the target" are two different things, and the current price level is still high.
Inflationary pressures have spread from energy and food prices to services, which are more persistent in housing and employment.
It may be difficult to bring inflation back to the 2% target set by the Federal Reserve next year.
Several officials with voting rights on monetary policy said the Fed has a "long way" to go before it stops raising interest rates.
Federal Reserve Chairman Powell said at a press conference after the regular monetary policy meeting in December that, based on the core personal consumption expenditures (PCE) price index, inflation is expected to remain well above the long-term target of 2% by the end of next year. More work needs to be done."
economic pressure
Inflation in 2022 has been more contagious and persistent than many officials and economists expected.
In this economic environment, labor market conditions, inflation, and monetary policy are closely linked.
The Federal Reserve, which is in the "impossible triangle" of high interest rates, high inflation and high growth, must not only resist inflation, but also stabilize growth and prevent recession.
Facing the predicament that the economy is expected to enter a recession, the Fed's path to raising interest rates is full of difficult choices.
In this regard, Powell has repeatedly emphasized after the regular monetary policy meeting that the Fed's first priority is to restore price stability and is firmly committed to reducing inflation.
At a June briefing, he said that even if rapid rate hikes increase the risk of a recession, the Fed needs to do so to avoid the greater danger that rising inflation becomes entrenched in the economy.
In November, faced with questions about aggressive rate hikes, he said again that a resurgence of inflation was worse than raising rates too far and triggering a recession.
The market expressed concern about aggressive interest rate hikes.
The three major indexes of the U.S. stock market have continuously hit new lows this year, and the Dow, Nasdaq, and S&P 500 once all fell into a bear market.
The US financial media CNBC quoted JPMorgan Chase CEO Jamie Dimon as saying that after the Federal Reserve raised interest rates several times in a row, the federal funds rate will eventually reach the level of 5%, but the rate "may not be enough" to curb inflation. It could also tip the economy into recession.
In October, economists surveyed by The Wall Street Journal predicted a 63 percent chance that the U.S. economy would slip into a recession in the coming year.
In the same month, data from a model established by economists at Bloomberg showed that the probability of a recession in the U.S. economy in the coming year was 100%.
Many Wall Street analysts believe that the Fed has a long way to go to truly get out of high inflation and at the same time prevent economic recession.
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