US Inflation Pressure Continues... Fed at a Crossroads, Will Tomorrow Bring a Hint?

[Asia Economy New York=Special Correspondent Joselgina] "The Federal Reserve (Fed) missed inflation."

As additional indicators show that inflationary pressures in the U.S. are not easing, the central bank Fed is also at a 'crossroads.' While there are hawkish voices calling for an emergency meeting before the March Federal Open Market Committee (FOMC) to raise interest rates, cautious opinions warning of possible adverse effects are also emerging. The market is focusing on the soon-to-be-released January FOMC minutes.

According to the U.S. Department of Labor on the 15th (local time), the U.S. Producer Price Index (PPI) for January rose 1.0% from the previous month and 9.7% year-on-year. This far exceeded market expectations. The month-over-month increase was the largest in eight months since May last year, doubling the expert forecast of 0.5%. The year-on-year increase also surpassed the market forecast of 9.1%, nearly reaching the all-time high of 9.8% recorded in December last year.

The core PPI, which excludes volatile food and energy prices, also rose 0.8% month-over-month, marking the largest increase since January 2021. Core PPI increased 6.9% compared to a year ago. Cash Jones of Charles Schwab pointed out, "It has been confirmed that high levels of inflation persist," adding, "Attention should be paid to the fact that inflation in the service sector, in addition to goods, is also rising."

These inflation indicators are expected to strengthen the Fed's future rate hike moves. However, conflicting voices about inflation are pouring out internally. There is a strong argument that the Fed's tightening should accelerate to curb inflation, while counterarguments emphasize caution to avoid triggering a recession or other negative effects.

The Wall Street Journal (WSJ) reported, "Fed Chair Jerome Powell is tasked with suppressing inflation without tipping the economy into a recession. In some ways, Powell's challenge is harsher than at the start of the pandemic," adding, "No Fed chair since Paul Volcker in the early 1980s has wrestled with such high inflation."

The market is paying close attention to the FOMC minutes to be released by the Fed on the 16th. With rate hikes virtually certain from March, the January FOMC minutes are being scrutinized for hints on the future pace and magnitude of rate increases based on economic assessments.

Earlier, the U.S. Consumer Price Index (CPI) for January was announced to have surged 7.5% year-on-year, marking the highest in 40 years. Immediately after this data release, James Bullard, President of the Federal Reserve Bank of St. Louis and a representative hawk, argued that a 1 percentage point increase in the benchmark interest rate is necessary by July. In an interview with CNBC the day before, he said, "I think it should be moved up earlier than previously planned," and "I will convince my colleagues," urging an acceleration of tightening. Likewise, Loretta Mester, President of the Cleveland Fed, also indicated the need for a 0.5 percentage point rate hike.

On the other hand, voices advocating caution are also rising. Mary Daly, President of the San Francisco Fed, and Esther George, President of the Kansas City Fed, recently expressed negative views on a 0.5 percentage point hike in public appearances. They emphasize cautious and gradual rate increases based on data. President George warned, "It could lead to a recession."

Major foreign media predict that this division within the Fed will continue until the February inflation data are released. Ultimately, the February CPI and employment data, which will be released before the March FOMC, are key. The New York Times (NYT) and others reported that "caution still prevails within the Fed," and the possibility of an emergency meeting before the FOMC is low.

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