"Fed, Possible Rate Hike Next Year" Warning from Wall Street's Leading Figure [Correspondent Diary]

Year-End Tapering Confirmed... Market Focus Shifts to Interest Rate Hike Timing
Fed Likely to Signal Next Year's Rate Hike Through Dot Plot and Inflation Outlook
Attention on Whether Temporary Inflation Assessment Will Be Withdrawn

Jamie Dimon, CEO of JPMorgan Chase [Photo by Reuters]

[Asia Economy New York=Correspondent Baek Jong-min] The "Godfather of Wall Street" warned of the possibility of a U.S. interest rate hike next year, saying that the rise in inflation is not ordinary.

Jamie Dimon, CEO of JPMorgan Chase, said in an interview with CNBC on the 21st (local time), "The Fed cannot always be preventive. The Fed will also respond after the fact," adding, "There is a possibility that the Fed will have to do so next year."

This is an expectation that the Fed may take swift action if inflation continues until the end of the year. Over the past year, the consumer price index (CPI) has risen by 5.3%, far exceeding the Fed's inflation target of 2%.

The Fed and Chairman Jerome Powell have maintained the position that the inflation rise following the COVID-19 crisis is temporary, and although the August CPI fell short of market expectations, leading to analyses that inflationary pressures had eased, in reality, signs of a second wave of inflation are evident.

FedEx, a leading U.S. courier company, announced on the 20th that it will raise rates in January next year. This is the first time in eight years that FedEx has increased rates by more than 4.9%. FedEx also plans to raise fuel surcharges starting in November.

FedEx's competitor UPS is also expected to announce next year's rates soon, and industry analysts agree that a significant increase is certain.

Price hikes by courier companies translate into burdens for major customers such as online retailers. This ultimately leads to price increases for products sold on internet shopping malls.

Transportation costs in the U.S. have already reached a serious level.

A famous Japanese restaurant in New Jersey recently raised sushi prices by nearly 20%. The reason is transportation costs. This restaurant has been using live fish imported by air from Korea. According to seafood industry insiders, air freight charges have increased, and since live fish are not urgent cargo, they often get deprioritized in cargo shipping. Many other restaurants are also raising food prices without hesitation due to rising ingredient and labor costs.

Korean food products shipped to the U.S. by sea are also facing a crisis. Over the past year, shipping costs have increased nearly eightfold, inevitably increasing the cost burden for bulky, low-priced food items.

The burden of logistics costs is also easily observed in the U.S. retail sector. Dollar Tree, which sells most products for one dollar, shocked the market in August by forecasting a weekly profit decrease of $1.50 to $1.60 due to rising freight costs.

The impact of rising logistics costs is expected to be reflected during the upcoming Christmas season. According to CNN, Balsam Hill, a Christmas tree seller, plans to raise the price of Christmas tree trees by about 20%.

This is because container costs from China have increased three to five times, making it impossible to maintain last year's prices. The situation for Christmas tree decorations is even more severe, with shortages already showing signs for both trees and ornaments.

Although used car prices, hotel rates, and airfare have declined since August, inflation still exceeds 5%. There is growing analysis that it will be difficult for prices to fall to the central bank's target average of 2% anytime soon.

The Organisation for Economic Co-operation and Development (OECD) also revised upward its inflation forecasts for the Group of Twenty (G20) countries to 3.7% this year and 3.9% next year, up 0.2 and 0.5 percentage points respectively from May.

Suppressing inflation is the core mission of central banks worldwide. Although the Fed emphasizes employment as a variable, it is in a situation where it cannot just stand by and watch inflation rise.

Market attention is shifting from tapering to the timing of interest rate hikes. On the 22nd, the Fed will conclude its two-day FOMC meeting and announce a statement, dot plot, and forecasts for future economic growth and inflation.

The dot plot released in June predicted a rate hike in 2023, but there is growing speculation that a faster timetable may be presented this time.

This can be linked to the judgment that the inflation situation is serious. Even if inflation forecasts are revised upward, it can be interpreted as a signal that the timing of rate hikes is approaching.

This content was produced with the assistance of AI translation services.