With annualised US inflation reaching 7% for 2021, markets look to the Federal Reserve.
Today’s US inflation reading, as measured by the CPI, was always going to be an insight into the actions that the Federal Reserve will be forced to take, perhaps sooner rather than later. We see that month-on-month inflation in the US rose by 0.5% ahead of market estimates of a 0.4% increase and pushes annualised inflation to exactly 7% for the year of 2021 – the highest it has been since the early 1980s. Inflation remains persistently high as the US emerges from its long pandemic and with businesses increasingly having to pay up for labour, the cocktail for higher inflation seems to be fully mixed now. How the Fed tames this is all the more important now – it is way behind the curve and needs to act more aggressively if it is to get inflation to moderate from these historically high levels. The March meeting looks certain for the first hike from the Fed this year and that has already been priced into bonds – equities on the other hand seem to be oblivious to higher rate risks for the time being.
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