As Market Predicted, US Faces 7% Inflation Shock

Fed Vice Chair Nominee Also Emphasizes "Importance of Inflation Management"
Ko Seung-beom: "Gray Rhino Becoming Reality"

[Asia Economy New York=Correspondents Baek Jong-min and Lee Kwang-ho] The inflation rate in the United States last year reached 7%, the highest level in 40 years. As concerns over high inflation deepen, an early interest rate hike by the U.S. Federal Reserve (Fed) is becoming a foregone conclusion.

Lael Brainard, the next Fed Vice Chair nominee who was known as a prominent dove, has also joined the hawkish camp.

On the 12th (local time), the U.S. Department of Labor announced that the Consumer Price Index (CPI) for December last year rose 7.0% compared to the same period the previous year. This is the highest level since June 1982.

Although December's inflation matched market expectations, it recorded over 6% for three consecutive months. In particular, core inflation, which excludes the volatile food and energy prices, showed a higher-than-expected increase of 5.5%. This is the highest level since February 1991.

U.S. President Joe Biden welcomed the slight decline in food and energy prices on the day, but experts believe the surge in inflation will not stop easily. This is because major prices such as housing rents and wages continue to rise.

Fed Chair Jerome Powell announced that quantitative tightening would begin in the second half of the year, but if the situation worsens, the tightening clock is likely to move faster.

In pre-distributed materials for the U.S. congressional confirmation hearing on the same day, Brainard, the Fed director nominated as the next Vice Chair, stated that managing inflation is "the Fed's most important mission." He emphasized, "Inflation is too high," and "Fed monetary policy is focused on bringing inflation back down to 2%."

The New York Times (NYT) reported that it is unclear how quickly inflation will rise, leaving a significant challenge for the Biden administration and the Fed.

Since the inflation rate did not exceed market expectations, the market was reassured for the time being. On the day, U.S. Treasury yields fell intraday to 1.71%, and the Nasdaq index rose 0.23% in the New York stock market, stabilizing investor sentiment. The dollar also showed weakness.

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