Inflation hit the highest rate in 40 years in the gauge favored by the Federal Reserve, raising worries about price hikes and adding urgency to the central bank’s efforts to tighten monetary policy.
The personal consumption expenditures price index increased by 6.4% on an annual basis and 0.6% for the month of February, according to data released by the Bureau of Economic Analysis on Thursday morning, the fastest pace of inflation since early 1982.
Core PCE inflation, which strips out energy and food prices, rose at a 5.4% annual rate.
“Consumer inflation isn’t exactly taking a breather, but it is less than the CPI measure, and there is hope the inflation outbreak will lessen in intensity in coming months,” said Fwdbonds chief economist Christopher Rupkey. “Prices can’t continue to rise too fast, or companies will lose product sales as consumers back off because they simply can’t afford it.”
A KEY BOND MARKET INDICATOR IS FLASHING MAJOR RECESSION RISK
Thursday’s inflation reading is another punch in the gut for President Joe Biden, who has seen his approval ratings dip as prices have risen.
The numbers are sure to give the Fed more leverage in pursuing more aggressive interest rate hikes to beat back the surging inflation.
The Federal Reserve announced earlier this month that it would raise its interest rate target by a quarter of a percentage point, the first such rate hike in years.
Fed Chairman Jerome Powell has also indicated that the central bank might be forced to move even more aggressively than previously thought to tame the rising prices, a prospect that could ding economic growth. He has left a half-percentage-point hike on the table for May, something that would be akin to two simultaneous rate hikes and a tack that hasn’t been taken in more than two decades.
“We will take the necessary steps to ensure a return to price stability,” Powell said during a recent event. “In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”
“And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well,” he added.
Most investors now foresee a half-point hike in May, with the likelihood of the more aggressive rate hike occurring pegged at more than 71%, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices.
The consumer price index, the country’s most closely watched inflation gauge, has been running even hotter, with prices increasing by a mammoth 7.9% for the 12 months ending in February. While explosive energy prices have led both inflation indices, the cost of goods across the board, including essentials such as food, has ballooned from this time last year.
A new poll released this week found that the share of people saying inflation is the country’s leading problem has more than doubled in the last three months.
While inflation has been a malady for the country, the employment situation in the U.S. has rapidly improved from its pandemic-era lows.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The number of new applications for unemployment benefits is currently at 202,000, a historically low number that indicates a tight labor market. Last week, jobless claims fell to their lowest level since 1969.
After posting good numbers in January, the economy once again exceeded expectations and added 678,000 jobs in February.
