CNBC
"Inflation rises 7% over the past year, highest since 1982"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, JAN 12 2022
KEY POINTS
* The consumer price index, an inflation gauge that measures costs across dozens of items, rose 7% in December from a year earlier, the fastest pace since June 1982.
* That was in line, however, with economist estimates, and stock market futures rose after the release.
* Excluding food and energy, so-called core CPI was up 5.5% on the year, the biggest growth since February 1991.
Inflation plowed ahead at its fastest 12-month pace in nearly 40 years during December, according to a closely watched gauge the Labor Department released Wednesday.
The consumer price index, a metric that measures costs across dozens of items, increased 7%, according to the department’s Bureau of Labor Statistics.
On a monthly basis, CPI rose 0.5%.
Economists surveyed by Dow Jones had been expecting the gauge to increase 7% on an annual basis and 0.4% from November.
The annual move was the fastest increase since June 1982 and comes amid a shortage of goods and workers and on the heels of unprecedented cash flowing through the U.S. economy from Congress and the Federal Reserve.
Despite the strong gain, stocks rose after the news while government bond yields were mostly negative.
“The December CPI report of a 7% increase over the last 12 months will be shocking for some investors as we haven’t seen a number that high” in almost 40 years, said Brian Price, head of investment management at Commonwealth Financial Network.
“However, this print was largely anticipated by many, and we can see that reaction in the bond market as longer-term interest rates are declining so far this morning.”
Excluding food and energy prices, so-called core CPI increased 5.5% year over year and 0.6% from the previous month.
That compared with estimates of 5.4% and 0.5%.
For core inflation, it was the largest annual growth since February 1991.
Shelter costs, which make up nearly one-third of the total rose 0.4% for the month and 4.1% for the year.
That was the fastest pace since February 2007.
Used vehicle prices, which have been a major component of the inflation increase during the Covid pandemic due to supply chain constraints that have limited new vehicle production, rose another 3.5% in December, bringing the increase from a year ago to 37.3%.
Conversely, energy prices mostly declined for the month, falling 0.4% as fuel oil was down 2.4% and gasoline fell 0.5%.
Still, the complex as a whole rose 29.3% in the 12-month period, including a gain of 49.6% for gasoline.
Fed officials are watching the inflation data closely and are widely expected to raise interest rates this year in an effort combat increasing prices and as the jobs picture approaches full employment.
Though the central bank uses the personal consumption expenditures price index as its primary inflation measure, policymakers take in a wide range of information in making decisions.
“This morning’s CPI read really only solidifies what we already know: Consumer wallets are feeling pricing pressures and in turn the Fed has signaled a more hawkish approach."
"But the question remains if the Fed will pick up the pace given inflation is seemingly here to stay, at least in the medium-term,” said Mike Loewengart, managing director for investment strategy at E-Trade.
“With Covid cases continuing to rise, the impact on the supply chain and labor shortages could persist, which only fuels higher prices.”
Inflation has been eating into otherwise strong wage gains for workers.
However, real average hourly earnings posted a small 0.1% increase for the month, as the 0.6% total gain outweighed the 0.5% CPI headline increase.
On a year-over-year basis, real earnings declined 2.4%, according to BLS calculations.
Fed officials largely attribute rising inflation pressures to pandemic-specific issues in which a shortage of workers has led to clogged supply chains and empty store shelves.
Though there are signs the omicron variant cases could peak soon, lingering Covid issues combined with cold weather in the Northeast point “to renewed upward pressure on food prices,” wrote Paul Ashworth, chief U.S. economist at Capital Economics.
Food prices broadly rose 0.5% for December and were up 6.3% on a 12-month basis, the biggest rise since October 2008.
Investors largely expect the Fed to start raising rates in March.
Fed Chairman Jerome Powell, at his confirmation hearing Tuesday before the Senate banking panel, did not provide any specific dates but acknowledged that as long as current conditions persist, rate hikes are on the way.
Markets are pricing a nearly 79% chance for the first quarter-percentage point increase to come in May, and see about a 50% chance the Fed could enact four such hikes in 2022, according to the CME’s FedWatch Tool.
https://www.cnbc.com/2022/01/12/cpi-december-2021-.html
THE ECONOMY
Re: THE ECONOMY
REUTERS
"Fed's Mester says she supports reducing balance sheet as fast as feasible"
By Jonnelle Marte
JANUARY 12, 2022
NEW YORK (Reuters) - Now that the U.S. economy is in a stronger place, Federal Reserve officials should reduce the central bank’s bond holdings as quickly as they can without disrupting financial markets, Cleveland Fed President Loretta Mester said Wednesday.
Mester said she wants the Fed to look at using higher redemption caps as it reduces its balance sheet and that she would not want to rule out the possibility of actively selling assets, but emphasized those decisions will be based on the state of the economy.
“I would like to reduce it ... as fast as we can conditional on it not being disruptive to the financial markets,” Mester said during a virtual interview with the Wall Street Journal.
“I think there’s a very good case that we can go faster than we did the last time.”
Fed officials, when they meet again in two weeks, are set to debate strategies for removing the support offered to the U.S. economy during the pandemic.
This would include reducing the balance sheet and raising interest rates.
Mester repeated a view shared on Tuesday that she would support raising interest rates at the Fed’s March policy meeting if the economy looks similar to the way it does today, with the labor market recovering strongly and inflation running above the Fed’s 2% target.
U.S. consumer prices surged here by 7.0% in the 12 months through December, the largest annual increase in nearly 40 years, according to a report released Wednesday by the Labor Department.
Mester said she expects inflation measures to come down if the U.S. economy can move beyond the pandemic, but that would require the Fed to remove the extraordinary accommodation provided during the crisis.
“It’s not like you can think about what happens to inflation independent of what happens with monetary policy,” she said.
Reporting by Jonnelle Marte; Editing by Chizu Nomiyama
https://www.reuters.com/article/usa-fed ... SL1N2TS1V9
"Fed's Mester says she supports reducing balance sheet as fast as feasible"
By Jonnelle Marte
JANUARY 12, 2022
NEW YORK (Reuters) - Now that the U.S. economy is in a stronger place, Federal Reserve officials should reduce the central bank’s bond holdings as quickly as they can without disrupting financial markets, Cleveland Fed President Loretta Mester said Wednesday.
Mester said she wants the Fed to look at using higher redemption caps as it reduces its balance sheet and that she would not want to rule out the possibility of actively selling assets, but emphasized those decisions will be based on the state of the economy.
“I would like to reduce it ... as fast as we can conditional on it not being disruptive to the financial markets,” Mester said during a virtual interview with the Wall Street Journal.
“I think there’s a very good case that we can go faster than we did the last time.”
Fed officials, when they meet again in two weeks, are set to debate strategies for removing the support offered to the U.S. economy during the pandemic.
This would include reducing the balance sheet and raising interest rates.
Mester repeated a view shared on Tuesday that she would support raising interest rates at the Fed’s March policy meeting if the economy looks similar to the way it does today, with the labor market recovering strongly and inflation running above the Fed’s 2% target.
U.S. consumer prices surged here by 7.0% in the 12 months through December, the largest annual increase in nearly 40 years, according to a report released Wednesday by the Labor Department.
Mester said she expects inflation measures to come down if the U.S. economy can move beyond the pandemic, but that would require the Fed to remove the extraordinary accommodation provided during the crisis.
“It’s not like you can think about what happens to inflation independent of what happens with monetary policy,” she said.
Reporting by Jonnelle Marte; Editing by Chizu Nomiyama
https://www.reuters.com/article/usa-fed ... SL1N2TS1V9
Re: THE ECONOMY
REUTERS
U.S. posts smallest budget deficit in two years as employment rebounds"
By Reuters Staff
JANUARY 12, 2022
(Reuters) - The U.S. government posted a $21 billion budget deficit for December 2021, the smallest monthly gap in two years as individual income tax receipts surged with increased employment, the Treasury Department said on Wednesday.
The December deficit was 85% lower than the year-ago deficit of $144 billion, and was the smallest since a December 2019 deficit of $13 billion, just before the COVID-19 pandemic threw the global economy into a tailspin.
December receipts grew 41% to a monthly record of $487 billion, while outlays grew 4% to a record $508 billion.
For the first three months of the 2022 fiscal year started Oct. 1 the federal deficit fell 34% from the prior year period to $378 billion, with receipts up 31% to a record $1.052 trillion and outlays up 4% to a record $1.430 trillion.
December’s results were driven by a 44% increase in individual withheld income and payroll taxes, while other individual tax payments rose 13% for the month.
A number of outlay categories were lower in December than a year ago, with Labor Department outlays -- principally unemployment benefits -- down 81% to $6 billion.
Reporting By David Lawder; Editing by Andrea Ricci
https://www.reuters.com/article/usa-eco ... SS0N2T0023
U.S. posts smallest budget deficit in two years as employment rebounds"
By Reuters Staff
JANUARY 12, 2022
(Reuters) - The U.S. government posted a $21 billion budget deficit for December 2021, the smallest monthly gap in two years as individual income tax receipts surged with increased employment, the Treasury Department said on Wednesday.
The December deficit was 85% lower than the year-ago deficit of $144 billion, and was the smallest since a December 2019 deficit of $13 billion, just before the COVID-19 pandemic threw the global economy into a tailspin.
December receipts grew 41% to a monthly record of $487 billion, while outlays grew 4% to a record $508 billion.
For the first three months of the 2022 fiscal year started Oct. 1 the federal deficit fell 34% from the prior year period to $378 billion, with receipts up 31% to a record $1.052 trillion and outlays up 4% to a record $1.430 trillion.
December’s results were driven by a 44% increase in individual withheld income and payroll taxes, while other individual tax payments rose 13% for the month.
A number of outlay categories were lower in December than a year ago, with Labor Department outlays -- principally unemployment benefits -- down 81% to $6 billion.
Reporting By David Lawder; Editing by Andrea Ricci
https://www.reuters.com/article/usa-eco ... SS0N2T0023
Re: THE ECONOMY
REUTERS
"Fed's Bullard sees four U.S. rate hikes this year"
By Reuters Staff
JANUARY 12, 2022
(Reuters) - St. Louis Federal Reserve Bank President James Bullard on Wednesday upped his view of how fast the U.S. central bank should tighten monetary policy, saying he now believes four interest rate hikes may be in the cards this year.
“I actually now think we should maybe go to four hikes in 2022,” Bullard told the Wall Street Journal in an interview.
Reporting by Ann Saphir
https://www.reuters.com/article/usa-fed ... SS0N2RG00C
"Fed's Bullard sees four U.S. rate hikes this year"
By Reuters Staff
JANUARY 12, 2022
(Reuters) - St. Louis Federal Reserve Bank President James Bullard on Wednesday upped his view of how fast the U.S. central bank should tighten monetary policy, saying he now believes four interest rate hikes may be in the cards this year.
“I actually now think we should maybe go to four hikes in 2022,” Bullard told the Wall Street Journal in an interview.
Reporting by Ann Saphir
https://www.reuters.com/article/usa-fed ... SS0N2RG00C
Re: THE ECONOMY
REUTERS
"Fed's Brainard: Controlling inflation is 'most important task'"
By Ann Saphir, Howard Schneider
JANUARY 12, 2022
(Reuters) - Controlling inflation that has spiked to nearly a 40-year high is the “most important task” facing the Federal Reserve right now, Fed Governor Lael Brainard said in prepared remarks for a Senate hearing on Thursday on her nomination to become vice chair of the U.S. central bank.
“We are seeing the strongest rebound in growth and decline in unemployment of any recovery in the past five decades,” Brainard said in comments to be delivered to the Senate Banking Committee.
“But inflation is too high, and working people around the country are concerned about how far their paychecks will go."
"Our monetary policy is focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone."
"This is our most important task."
Brainard is scheduled to begin her testimony at 10 a.m. EST (1500 GMT) in a session that could mark the start of a broader and potentially bitter partisan contest over the make-up of the Fed’s seven-member governing board.
Only four of those seats are filled right now, and pending Biden appointments, including for a second vice chair’s slot overseeing financial regulation, could advance what he and his Democratic supporters feel should be a bigger Fed role on climate issues and a tougher hand with Wall Street.
Brainard, a Democrat first appointed to the Fed in 2014 by then-President Barack Obama and confirmed at the time by a 61-31 vote, would be a prominent player in that effort.
She is a veteran of U.S. economic policymaking, and in her remarks noted that she had “worked on the U.S. policy response to every major financial crisis over three decades” as a member of past Democratic administrations and more recently at the Fed.
In her prepared remarks, which were released by the Fed on Wednesday, Brainard said she was “committed to the independent and nonpartisan status” of the central bank, and promised an “independent voice.”
As a Fed governor she was a frequent dissenting vote against steps taken during former President Donald Trump’s administration and under Fed Chair Jerome Powell to loosen oversight of the largest banks; called for the Fed to require financial firms to set aside more capital; and worried that Fed officials were behind European central bankers in understanding how climate change may effect the macroeconomy and financial system.
Conservative groups like the Club for Growth, as a result, have tried to build the case against her confirmation as vice chair, and Republican senators have flagged a fight to come: at Powell’s own confirmation hearing this week one Republican senator asked whether he risked being outnumbered if Brainard is confirmed along with the other expected Biden appointments to the Fed’s board.
Brainard’s confirmation hearing will be held jointly alongside that for Sandra Thompson, who has been nominated by Biden to be director of the Federal Housing Finance Agency.
Thompson is currently FHFA’s acting director.
MORE SWAY
The Fed’s vice chair has a central role in shaping monetary policy, which is now being shifted away from the accommodative programs put in place at the start of the pandemic and towards higher interest rates and other efforts to tame inflation.
Brainard’s prepared remarks stuck close to the monetary policy script used by Powell at his hearing on Tuesday, when he said the Fed will act as needed with higher interest rates and other measures to be sure inflation returns from its current high level to the 2% target.
U.S. consumer prices are rising at their fastest pace in almost four decades as high consumer demand for goods like used cars overwhelms supply limited by snarled supply chains and a pandemic-hit workforce.
The Fed decided last month to end its monthly bond purchases in March to clear the way for what most policymakers expected would be at least three quarter-percentage-point interest rate hikes this year.
But Brainard, as vice chair, would also gain more sway over cutting-edge issues like climate change and cryptocurrency regulation where the central bank’s approach is in flux.
Fed vice chairs are often called on to lead the development of new policies, and Brainard as a governor has staked out a broad agenda on those and other topics.
Reporting by Howard Schneider and Ann Saphir; Editing by Paul Simao
https://www.reuters.com/article/usa-fed ... SL1N2TS23P
"Fed's Brainard: Controlling inflation is 'most important task'"
By Ann Saphir, Howard Schneider
JANUARY 12, 2022
(Reuters) - Controlling inflation that has spiked to nearly a 40-year high is the “most important task” facing the Federal Reserve right now, Fed Governor Lael Brainard said in prepared remarks for a Senate hearing on Thursday on her nomination to become vice chair of the U.S. central bank.
“We are seeing the strongest rebound in growth and decline in unemployment of any recovery in the past five decades,” Brainard said in comments to be delivered to the Senate Banking Committee.
“But inflation is too high, and working people around the country are concerned about how far their paychecks will go."
"Our monetary policy is focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone."
"This is our most important task."
Brainard is scheduled to begin her testimony at 10 a.m. EST (1500 GMT) in a session that could mark the start of a broader and potentially bitter partisan contest over the make-up of the Fed’s seven-member governing board.
Only four of those seats are filled right now, and pending Biden appointments, including for a second vice chair’s slot overseeing financial regulation, could advance what he and his Democratic supporters feel should be a bigger Fed role on climate issues and a tougher hand with Wall Street.
Brainard, a Democrat first appointed to the Fed in 2014 by then-President Barack Obama and confirmed at the time by a 61-31 vote, would be a prominent player in that effort.
She is a veteran of U.S. economic policymaking, and in her remarks noted that she had “worked on the U.S. policy response to every major financial crisis over three decades” as a member of past Democratic administrations and more recently at the Fed.
In her prepared remarks, which were released by the Fed on Wednesday, Brainard said she was “committed to the independent and nonpartisan status” of the central bank, and promised an “independent voice.”
As a Fed governor she was a frequent dissenting vote against steps taken during former President Donald Trump’s administration and under Fed Chair Jerome Powell to loosen oversight of the largest banks; called for the Fed to require financial firms to set aside more capital; and worried that Fed officials were behind European central bankers in understanding how climate change may effect the macroeconomy and financial system.
Conservative groups like the Club for Growth, as a result, have tried to build the case against her confirmation as vice chair, and Republican senators have flagged a fight to come: at Powell’s own confirmation hearing this week one Republican senator asked whether he risked being outnumbered if Brainard is confirmed along with the other expected Biden appointments to the Fed’s board.
Brainard’s confirmation hearing will be held jointly alongside that for Sandra Thompson, who has been nominated by Biden to be director of the Federal Housing Finance Agency.
Thompson is currently FHFA’s acting director.
MORE SWAY
The Fed’s vice chair has a central role in shaping monetary policy, which is now being shifted away from the accommodative programs put in place at the start of the pandemic and towards higher interest rates and other efforts to tame inflation.
Brainard’s prepared remarks stuck close to the monetary policy script used by Powell at his hearing on Tuesday, when he said the Fed will act as needed with higher interest rates and other measures to be sure inflation returns from its current high level to the 2% target.
U.S. consumer prices are rising at their fastest pace in almost four decades as high consumer demand for goods like used cars overwhelms supply limited by snarled supply chains and a pandemic-hit workforce.
The Fed decided last month to end its monthly bond purchases in March to clear the way for what most policymakers expected would be at least three quarter-percentage-point interest rate hikes this year.
But Brainard, as vice chair, would also gain more sway over cutting-edge issues like climate change and cryptocurrency regulation where the central bank’s approach is in flux.
Fed vice chairs are often called on to lead the development of new policies, and Brainard as a governor has staked out a broad agenda on those and other topics.
Reporting by Howard Schneider and Ann Saphir; Editing by Paul Simao
https://www.reuters.com/article/usa-fed ... SL1N2TS23P
Re: THE ECONOMY
REUTERS
"Biden says 'price increases still too high'"
By Kanishka Singh, Jeff Mason
JANUARY 12, 2022
WASHINGTON (Reuters) -U.S. President Joe Biden admitted on Wednesday that his administration still had “more work to do with price increases still too high” even as he stated that there was progress made in slowing the rate of price rises.
His statement was released by the White House after U.S. consumer prices increased solidly in December, culminating in the largest annual rise in inflation in nearly four decades.
“We are making progress in slowing the rate of price increases."
"At the same time, this report underscores that we still have more work to do, with price increases still too high and squeezing family budgets”, Biden said.
In the 12 months through December, the consumer price index surged 7%.
That was the biggest year-on-year increase since June 1982 and followed a 6.8% rise in November.
The report from the Labor Department on Wednesday followed on the heels of data last Friday showing that the labor market was at or near maximum employment.
White House economic adviser Brian Deese said later on Wednesday that supply chain challenges manifested themselves more than people had anticipated as he addressed questions about a rise in inflation.
“We’ve seen a number of unanticipated outcomes,” Deese told reporters in a briefing.
Price inflation is a “global phenomenon,” he said, one that is connected to the COVID-19 pandemic and related supply chain challenges that have evolved.
Deese said the Biden administration plans to take additional steps this month to attempt to further ease bottlenecks at ports.
He said most forecasters expect prices to moderate over the course of 2022.
Reporting by Kanishka Singh in Bengaluru and Jeff Mason in Washington; editing by Jonathan Oatis
https://www.reuters.com/article/usa-eco ... SFWN2TS17P
"Biden says 'price increases still too high'"
By Kanishka Singh, Jeff Mason
JANUARY 12, 2022
WASHINGTON (Reuters) -U.S. President Joe Biden admitted on Wednesday that his administration still had “more work to do with price increases still too high” even as he stated that there was progress made in slowing the rate of price rises.
His statement was released by the White House after U.S. consumer prices increased solidly in December, culminating in the largest annual rise in inflation in nearly four decades.
“We are making progress in slowing the rate of price increases."
"At the same time, this report underscores that we still have more work to do, with price increases still too high and squeezing family budgets”, Biden said.
In the 12 months through December, the consumer price index surged 7%.
That was the biggest year-on-year increase since June 1982 and followed a 6.8% rise in November.
The report from the Labor Department on Wednesday followed on the heels of data last Friday showing that the labor market was at or near maximum employment.
White House economic adviser Brian Deese said later on Wednesday that supply chain challenges manifested themselves more than people had anticipated as he addressed questions about a rise in inflation.
“We’ve seen a number of unanticipated outcomes,” Deese told reporters in a briefing.
Price inflation is a “global phenomenon,” he said, one that is connected to the COVID-19 pandemic and related supply chain challenges that have evolved.
Deese said the Biden administration plans to take additional steps this month to attempt to further ease bottlenecks at ports.
He said most forecasters expect prices to moderate over the course of 2022.
Reporting by Kanishka Singh in Bengaluru and Jeff Mason in Washington; editing by Jonathan Oatis
https://www.reuters.com/article/usa-eco ... SFWN2TS17P
Re: THE ECONOMY
REUTERS
"U.S. mortgage interest rates surge by most in almost 2 years"
By Reuters Staff
JANUARY 12, 2022
(Reuters) - The interest rate on the most popular type of U.S. home loan surged last week by the most in two years and has climbed back roughly to where it was before the coronavirus pandemic struck, after signals that the Federal Reserve would be raising rates sooner and faster than previously expected.
The Mortgage Bankers Association on Wednesday said its weekly measure of the average contract rate on a 30-year fixed-rate mortgage jumped to 3.52% in the week ended Jan. 7 from 3.33% a week earlier.
That was the largest weekly increase since March 2020 and pushed the prevailing rate to around where it was just before the pandemic triggered a recession and drove borrowing costs to historic lows when the Fed cut its benchmark rate to near zero.
That era now appears to have passed, however.
Mortgage rates had been edging higher for the past several months, but the large jump in rates last week followed the release of the minutes of the Fed’s December meeting.
That readout showed the policymakers were prepared to combat surging inflation with higher interest rates and a likely reduction in the Fed’s holdings of more than $8 trillion of Treasuries and mortgage-backed securities.
That is crimping mortgage application volumes, especially for loan refinancings, with rates now around half a percentage point higher than where they were three months ago.
“Rates at these levels are quickly closing the door on refinance opportunities for many borrowers."
"Although refinance activity changed little over the week, applications remained at their lowest level in over a month, and conventional refinance applications were at their lowest level since January 2020,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
Overall loan application volumes rose 1.4% last week on the back of a 2.2% increase in loans to buy a home, while refinancing applications edged down by 0.1%.
Reporting By Dan Burns; Editing by Chizu Nomiyama
https://www.reuters.com/article/usa-eco ... SL1N2TS19P
"U.S. mortgage interest rates surge by most in almost 2 years"
By Reuters Staff
JANUARY 12, 2022
(Reuters) - The interest rate on the most popular type of U.S. home loan surged last week by the most in two years and has climbed back roughly to where it was before the coronavirus pandemic struck, after signals that the Federal Reserve would be raising rates sooner and faster than previously expected.
The Mortgage Bankers Association on Wednesday said its weekly measure of the average contract rate on a 30-year fixed-rate mortgage jumped to 3.52% in the week ended Jan. 7 from 3.33% a week earlier.
That was the largest weekly increase since March 2020 and pushed the prevailing rate to around where it was just before the pandemic triggered a recession and drove borrowing costs to historic lows when the Fed cut its benchmark rate to near zero.
That era now appears to have passed, however.
Mortgage rates had been edging higher for the past several months, but the large jump in rates last week followed the release of the minutes of the Fed’s December meeting.
That readout showed the policymakers were prepared to combat surging inflation with higher interest rates and a likely reduction in the Fed’s holdings of more than $8 trillion of Treasuries and mortgage-backed securities.
That is crimping mortgage application volumes, especially for loan refinancings, with rates now around half a percentage point higher than where they were three months ago.
“Rates at these levels are quickly closing the door on refinance opportunities for many borrowers."
"Although refinance activity changed little over the week, applications remained at their lowest level in over a month, and conventional refinance applications were at their lowest level since January 2020,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
Overall loan application volumes rose 1.4% last week on the back of a 2.2% increase in loans to buy a home, while refinancing applications edged down by 0.1%.
Reporting By Dan Burns; Editing by Chizu Nomiyama
https://www.reuters.com/article/usa-eco ... SL1N2TS19P
Re: THE ECONOMY
REUTERS
"U.S. consumer prices post biggest rise in nearly 40 years; inflation close to peaking"
By Lucia Mutikani
January 12, 2022
Summary
* Consumer prices increase 0.5% in December
* CPI surges 7.0% year-on-year
* Core CPI rises 0.6%; advances 5.5% year-on-year
WASHINGTON, Jan 12 (Reuters) - U.S. consumer prices increased solidly in December as rental accommodation and used cars maintained their strong gains, culminating in the largest annual rise in inflation in nearly four decades, which bolstered expectations that the Federal Reserve will start raising interest rates as early as March.
The report from the Labor Department on Wednesday followed on the heels of data last Friday showing that the labor market was at or near maximum employment.
Fed Chair Jerome Powell on Tuesday said the U.S. central bank stood ready to do what was necessary to keep high inflation from becoming "entrenched," in testimony during his nomination hearing before the Senate Banking Committee for a second four-year term as head of the bank.
The high cost of living, the result of snarled supply chains because of the COVID-19 pandemic, is a political nightmare for President Joe Biden, whose approval rating has taken a hit.
"The Fed is going to be forced to begin raising rates in March and depending on the political pressure on them – from both sides of the aisle – they are going to have to raise rates four or more times in this year and potentially more than that next year," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
The consumer price index rose 0.5% last month after advancing 0.8% in November.
In addition to higher rents, consumers also paid more for food, though the 0.5% increase in food prices was less than in the prior three months.
There were big gains in the prices of fruits and vegetables, but beef prices fell 2.0% after recent sharp gains.
Consumers also got a respite from gasoline prices, which fell 0.5% after rising 6.1% in both November and October.
In the 12 months through December, the CPI surged 7.0%.
That was the biggest year-on-year increase since June 1982 and followed a 6.8% rise in November.
Last month's inflation readings were in line with expectations.
Rising inflation is also eroding wage gains.
Inflation-adjusted average weekly earnings fell 2.3% on a year-on-year basis in December.
President Biden said virtually every nation was afflicted with inflation as the global economy recovers from the pandemic.
"This report underscores that we still have more work to do, with price increases still too high and squeezing family budgets," Biden said in a statement.
Inflation is well above the Fed's flexible 2% target.
It is also being lifted by budding wage pressures as the labor market tightens.
The unemployment rate fell to a 22-month low of 3.9% in December.
Markets have priced in an about 80% chance of a rate hike in March, according to CME's FedWatch tool.
Economists say the broad nature of inflation appears to have caught Fed officials off guard.
There are concerns that inflation expectations could become entrenched and compel the Fed to aggressively tighten monetary policy, potentially causing a recession.
"This is the first time the Fed has chased instead of trying to preempt a nonexistent inflation since the 1980s," said Diane Swonk, chief economist at Grant Thornton in Chicago.
"Brace yourselves."
Stocks on Wall Street were trading higher amid relief that the increase in prices was as expected.
The dollar fell against a basket of currencies.
U.S. Treasury prices rose.
BOTTLENECKS EASING
Economists believe the year-on-year CPI rate probably peaked in December or will likely do so by March.
There are signs that supply bottlenecks are starting to ease, with an Institute for Supply Management survey last week showing manufacturers reporting improved supplier deliveries in December.
But soaring COVID-19 cases, driven by the Omicron variant, could slow progress towards normalization of supply chains.
Excluding the volatile food and energy components, the CPI increased 0.6% last month after rising 0.5% in November.
The so-called core CPI was boosted by rents, with owners' equivalent rent of primary residence, which is what a homeowner would receive from renting a home, rising a solid 0.4% for a third straight month.
Prices for used cars and trucks accelerated 3.5% after increasing 2.5% in each of the prior two months.
The surge likely reflects Hurricane Ida in late August and early September, which destroyed thousands of motor vehicles among other property.
New motor vehicle prices rose 1.0%, marking the ninth consecutive month of gains.
A global semiconductor shortage has undercut motor vehicle production.
Prices for furniture, bedding and housekeeping supplies increased.
Apparel prices jumped 1.7%, the largest increase since January 2021.
The cost of healthcare rose 0.3%.
There were also increases in the prices for airline tickets, personal care products and tobacco.
But the cost of motor vehicle insurance fell again as did recreation.
Communication prices were unchanged.
In the 12 months through December, the so-called core CPI accelerated 5.5%.
That was the largest year-on-year gain since February 1991 and followed a 4.9% advance in November.
The year-on-year core CPI rate is seen peaking in February.
Still, inflation is likely to remain above target this year.
"Inflation will slow in 2022 as supply chains reopen and prices for some items, like vehicles and energy, decline as supply catches up to demand," said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.
"But inflation for many other goods and services will be higher in 2022 than before the pandemic, due to higher labor costs and input prices."
"Housing will also contribute to high inflation in 2022."
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
https://www.reuters.com/world/us/us-con ... 022-01-12/
"U.S. consumer prices post biggest rise in nearly 40 years; inflation close to peaking"
By Lucia Mutikani
January 12, 2022
Summary
* Consumer prices increase 0.5% in December
* CPI surges 7.0% year-on-year
* Core CPI rises 0.6%; advances 5.5% year-on-year
WASHINGTON, Jan 12 (Reuters) - U.S. consumer prices increased solidly in December as rental accommodation and used cars maintained their strong gains, culminating in the largest annual rise in inflation in nearly four decades, which bolstered expectations that the Federal Reserve will start raising interest rates as early as March.
The report from the Labor Department on Wednesday followed on the heels of data last Friday showing that the labor market was at or near maximum employment.
Fed Chair Jerome Powell on Tuesday said the U.S. central bank stood ready to do what was necessary to keep high inflation from becoming "entrenched," in testimony during his nomination hearing before the Senate Banking Committee for a second four-year term as head of the bank.
The high cost of living, the result of snarled supply chains because of the COVID-19 pandemic, is a political nightmare for President Joe Biden, whose approval rating has taken a hit.
"The Fed is going to be forced to begin raising rates in March and depending on the political pressure on them – from both sides of the aisle – they are going to have to raise rates four or more times in this year and potentially more than that next year," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
The consumer price index rose 0.5% last month after advancing 0.8% in November.
In addition to higher rents, consumers also paid more for food, though the 0.5% increase in food prices was less than in the prior three months.
There were big gains in the prices of fruits and vegetables, but beef prices fell 2.0% after recent sharp gains.
Consumers also got a respite from gasoline prices, which fell 0.5% after rising 6.1% in both November and October.
In the 12 months through December, the CPI surged 7.0%.
That was the biggest year-on-year increase since June 1982 and followed a 6.8% rise in November.
Last month's inflation readings were in line with expectations.
Rising inflation is also eroding wage gains.
Inflation-adjusted average weekly earnings fell 2.3% on a year-on-year basis in December.
President Biden said virtually every nation was afflicted with inflation as the global economy recovers from the pandemic.
"This report underscores that we still have more work to do, with price increases still too high and squeezing family budgets," Biden said in a statement.
Inflation is well above the Fed's flexible 2% target.
It is also being lifted by budding wage pressures as the labor market tightens.
The unemployment rate fell to a 22-month low of 3.9% in December.
Markets have priced in an about 80% chance of a rate hike in March, according to CME's FedWatch tool.
Economists say the broad nature of inflation appears to have caught Fed officials off guard.
There are concerns that inflation expectations could become entrenched and compel the Fed to aggressively tighten monetary policy, potentially causing a recession.
"This is the first time the Fed has chased instead of trying to preempt a nonexistent inflation since the 1980s," said Diane Swonk, chief economist at Grant Thornton in Chicago.
"Brace yourselves."
Stocks on Wall Street were trading higher amid relief that the increase in prices was as expected.
The dollar fell against a basket of currencies.
U.S. Treasury prices rose.
BOTTLENECKS EASING
Economists believe the year-on-year CPI rate probably peaked in December or will likely do so by March.
There are signs that supply bottlenecks are starting to ease, with an Institute for Supply Management survey last week showing manufacturers reporting improved supplier deliveries in December.
But soaring COVID-19 cases, driven by the Omicron variant, could slow progress towards normalization of supply chains.
Excluding the volatile food and energy components, the CPI increased 0.6% last month after rising 0.5% in November.
The so-called core CPI was boosted by rents, with owners' equivalent rent of primary residence, which is what a homeowner would receive from renting a home, rising a solid 0.4% for a third straight month.
Prices for used cars and trucks accelerated 3.5% after increasing 2.5% in each of the prior two months.
The surge likely reflects Hurricane Ida in late August and early September, which destroyed thousands of motor vehicles among other property.
New motor vehicle prices rose 1.0%, marking the ninth consecutive month of gains.
A global semiconductor shortage has undercut motor vehicle production.
Prices for furniture, bedding and housekeeping supplies increased.
Apparel prices jumped 1.7%, the largest increase since January 2021.
The cost of healthcare rose 0.3%.
There were also increases in the prices for airline tickets, personal care products and tobacco.
But the cost of motor vehicle insurance fell again as did recreation.
Communication prices were unchanged.
In the 12 months through December, the so-called core CPI accelerated 5.5%.
That was the largest year-on-year gain since February 1991 and followed a 4.9% advance in November.
The year-on-year core CPI rate is seen peaking in February.
Still, inflation is likely to remain above target this year.
"Inflation will slow in 2022 as supply chains reopen and prices for some items, like vehicles and energy, decline as supply catches up to demand," said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.
"But inflation for many other goods and services will be higher in 2022 than before the pandemic, due to higher labor costs and input prices."
"Housing will also contribute to high inflation in 2022."
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
https://www.reuters.com/world/us/us-con ... 022-01-12/
Re: THE ECONOMY
REUTERS
"Fed's Clarida: Policy normalization in 2022 is consistent with framework"
By Jonnelle Marte
JANUARY 13, 2022
Jan 13 (Reuters) - Beginning to normalize monetary policy this year would be “entirely consistent” with the Federal Reserve’s new average inflation targeting framework, Fed Vice Chair Richard Clarida said in a paper released Thursday.
Clarida said he expects the labor market to reach maximum employment by the end of 2022 if the unemployment rate falls to 3.5%.
“Given this outlook and so long as inflation expectations remain well anchored at the 2 percent longer-run goal ... commencing policy normalization in 2022 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework,” Clarida wrote.
Clarida also said he expects the “unwelcome” inflation surge that started last year “will in the end prove to be largely transitory under appropriate monetary policy.”
He said he believes the underlying inflation rate is close to the Fed’s 2% longer-run target and that pressures may ease as supply chain bottlenecks ease.
The Fed official announced this week that he will resign on Friday here, two weeks ahead of the end of his term.
His resignation followed reports that he corrected his previous financial disclosure late last month to show he sold a stock fund and then swiftly repurchased it shortly before the Fed announced an array of rescue efforts to stem the economic fallout from the coronavirus pandemic.
(Reporting by Jonnelle Marte; editing by Jonathan Oatis)
https://www.reuters.com/article/usa-fed ... SL1N2TT298
"Fed's Clarida: Policy normalization in 2022 is consistent with framework"
By Jonnelle Marte
JANUARY 13, 2022
Jan 13 (Reuters) - Beginning to normalize monetary policy this year would be “entirely consistent” with the Federal Reserve’s new average inflation targeting framework, Fed Vice Chair Richard Clarida said in a paper released Thursday.
Clarida said he expects the labor market to reach maximum employment by the end of 2022 if the unemployment rate falls to 3.5%.
“Given this outlook and so long as inflation expectations remain well anchored at the 2 percent longer-run goal ... commencing policy normalization in 2022 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework,” Clarida wrote.
Clarida also said he expects the “unwelcome” inflation surge that started last year “will in the end prove to be largely transitory under appropriate monetary policy.”
He said he believes the underlying inflation rate is close to the Fed’s 2% longer-run target and that pressures may ease as supply chain bottlenecks ease.
The Fed official announced this week that he will resign on Friday here, two weeks ahead of the end of his term.
His resignation followed reports that he corrected his previous financial disclosure late last month to show he sold a stock fund and then swiftly repurchased it shortly before the Fed announced an array of rescue efforts to stem the economic fallout from the coronavirus pandemic.
(Reporting by Jonnelle Marte; editing by Jonathan Oatis)
https://www.reuters.com/article/usa-fed ... SL1N2TT298
Re: THE ECONOMY
REUTERS
"Fed officials nod to March rate hike as inflation drumbeat grows louder"
By Lindsay Dunsmuir, Ann Saphir
JANUARY 13, 2022
(Reuters) - Federal Reserve Governor Lael Brainard on Thursday became the latest and most senior U.S. central banker to signal that interest rates will rise in March to battle inflation that’s eroding the value of workers’ recent wage gains and putting policymakers under a political spotlight.
The Fed “has projected several rate hikes over the course of the year,” Brainard told the Senate Banking Committee, which is considering her nomination by U.S. President Joe Biden to become the Fed’s vice chair.
“We will be in a position to do that ... as soon as our purchases are terminated,” she said, referring to a separate Fed asset purchase program that is due to end in March, opening the door to a possible rate increase at the Fed’s March 15-16 policy meeting.
The Fed in December announced plans to buy its last tranche of government securities in February, sooner than it had projected just a month earlier.
With inflation rising 7% in December from a year earlier - the fastest pace in nearly 40 years - Fed policymakers are eager to do more, sooner, with rate increases expected in the coming months and plans to shrink the Fed’s nearly $9 trillion asset stash fast taking shape.
“We are clearly in a situation where the stance of monetary policy is wrong-footed” against inflation, Chicago Fed President Charles Evans said at an event hosted by the Milwaukee Business Journal on Thursday.
He called the recent projection by policymakers for three quarter-percentage-point rate increases in 2022 “a good opening bid,” but added “it could be four if the data don’t improve quickly enough.”
It was a common refrain this week as officials seemed to firm plans for an increase in borrowing costs in March and put the possibility of a fourth hike in 2022 into play.
This week is the last before Fed officials enter a no-comment “blackout” period ahead of their Jan. 25-26 policy meeting, a session where they would lay further groundwork for a March “liftoff” from the near-zero policy rate maintained through the crisis triggered by the coronavirus pandemic.
“My forecast is that we’d have a 25-basis-point increase in March barring any changes in the data,” Philadelphia Fed President Patrick Harker said at a virtual event hosted by the Philadelphia Business Journal earlier on Thursday.
“Lifting off and withdrawing some of the emergency accommodation we’ve offered the economy is actually an appropriate thing to do,” San Francisco Fed President Mary Daly told Reuters on Thursday.
Atlanta Fed President Raphael Bostic, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester also flagged a March rate hike on Wednesday.
BALANCE SHEET REDUCTION
In December, most Fed policymakers thought they would need to raise rates at least three times this year, but in recent weeks - with inflation remaining well above the central bank’s 2% goal and the labor market closing in on its full-employment goal - they’ve honed in on a March start to that process.
With that move now firmly on the table, several - including Brainard on Thursday - have also signaled they want to start shrinking the Fed’s massive balance sheet this year.
That would also remove policy accommodation and reduce downward pressure on long-term borrowing costs.
Investors currently see an 86% probability that the Fed will raise its benchmark overnight lending rate at its March 15-16 policy meeting, according to CME Group’s FedWatch program.
They are pricing in another three rate hikes this year.
Earlier this week, Fed Chair Jerome Powell also threw his weight behind a firm tightening of monetary policy this year, arguing the strong economy no longer “needs or wants” as much stimulus despite the surge in COVID-19 cases due to the Omicron variant.
Harker said on Thursday he sees the Fed beginning to reduce the size of its balance sheet in late 2022 or early 2023 and that its ultimate composition was still being debated.
Harker said on CNBC Thursday afternoon that officials should start shrinking balance sheet runoff after interest rates are “sufficiently” above zero and that the glide path for reducing bond holdings should be “steeper” than it was the last time the Fed offloaded its assets.
Brainard, for her part, said the Fed will try to bring inflation down “as quickly as we can but consistent with a sustained and strong recovery.”
Reporting by Lindsay Dunsmuir, Jonnelle Marte and Ann Saphir; Editing by Andrea Ricci, Paul Simao and Diane Craft
https://www.reuters.com/article/usa-fed ... SL1N2TT1Y1
"Fed officials nod to March rate hike as inflation drumbeat grows louder"
By Lindsay Dunsmuir, Ann Saphir
JANUARY 13, 2022
(Reuters) - Federal Reserve Governor Lael Brainard on Thursday became the latest and most senior U.S. central banker to signal that interest rates will rise in March to battle inflation that’s eroding the value of workers’ recent wage gains and putting policymakers under a political spotlight.
The Fed “has projected several rate hikes over the course of the year,” Brainard told the Senate Banking Committee, which is considering her nomination by U.S. President Joe Biden to become the Fed’s vice chair.
“We will be in a position to do that ... as soon as our purchases are terminated,” she said, referring to a separate Fed asset purchase program that is due to end in March, opening the door to a possible rate increase at the Fed’s March 15-16 policy meeting.
The Fed in December announced plans to buy its last tranche of government securities in February, sooner than it had projected just a month earlier.
With inflation rising 7% in December from a year earlier - the fastest pace in nearly 40 years - Fed policymakers are eager to do more, sooner, with rate increases expected in the coming months and plans to shrink the Fed’s nearly $9 trillion asset stash fast taking shape.
“We are clearly in a situation where the stance of monetary policy is wrong-footed” against inflation, Chicago Fed President Charles Evans said at an event hosted by the Milwaukee Business Journal on Thursday.
He called the recent projection by policymakers for three quarter-percentage-point rate increases in 2022 “a good opening bid,” but added “it could be four if the data don’t improve quickly enough.”
It was a common refrain this week as officials seemed to firm plans for an increase in borrowing costs in March and put the possibility of a fourth hike in 2022 into play.
This week is the last before Fed officials enter a no-comment “blackout” period ahead of their Jan. 25-26 policy meeting, a session where they would lay further groundwork for a March “liftoff” from the near-zero policy rate maintained through the crisis triggered by the coronavirus pandemic.
“My forecast is that we’d have a 25-basis-point increase in March barring any changes in the data,” Philadelphia Fed President Patrick Harker said at a virtual event hosted by the Philadelphia Business Journal earlier on Thursday.
“Lifting off and withdrawing some of the emergency accommodation we’ve offered the economy is actually an appropriate thing to do,” San Francisco Fed President Mary Daly told Reuters on Thursday.
Atlanta Fed President Raphael Bostic, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester also flagged a March rate hike on Wednesday.
BALANCE SHEET REDUCTION
In December, most Fed policymakers thought they would need to raise rates at least three times this year, but in recent weeks - with inflation remaining well above the central bank’s 2% goal and the labor market closing in on its full-employment goal - they’ve honed in on a March start to that process.
With that move now firmly on the table, several - including Brainard on Thursday - have also signaled they want to start shrinking the Fed’s massive balance sheet this year.
That would also remove policy accommodation and reduce downward pressure on long-term borrowing costs.
Investors currently see an 86% probability that the Fed will raise its benchmark overnight lending rate at its March 15-16 policy meeting, according to CME Group’s FedWatch program.
They are pricing in another three rate hikes this year.
Earlier this week, Fed Chair Jerome Powell also threw his weight behind a firm tightening of monetary policy this year, arguing the strong economy no longer “needs or wants” as much stimulus despite the surge in COVID-19 cases due to the Omicron variant.
Harker said on Thursday he sees the Fed beginning to reduce the size of its balance sheet in late 2022 or early 2023 and that its ultimate composition was still being debated.
Harker said on CNBC Thursday afternoon that officials should start shrinking balance sheet runoff after interest rates are “sufficiently” above zero and that the glide path for reducing bond holdings should be “steeper” than it was the last time the Fed offloaded its assets.
Brainard, for her part, said the Fed will try to bring inflation down “as quickly as we can but consistent with a sustained and strong recovery.”
Reporting by Lindsay Dunsmuir, Jonnelle Marte and Ann Saphir; Editing by Andrea Ricci, Paul Simao and Diane Craft
https://www.reuters.com/article/usa-fed ... SL1N2TT1Y1