US consumer prices rise sharply despite Federal Reserve rate hikes

Rapidly rising consumer prices in the United States showed no signs of slowing down in September, sparking a choppy trading session on Wall Street as investors debated whether the Federal Reserve should become even more aggressively to slow runaway inflation.

The core measure of consumer price index inflation, which excludes volatile energy and food costs, rose 6.6% on an annual basis last month, faster than the 6.3% rate in August – and its fastest pace in four decades.

Last month’s headline CPI increase, including energy and food, was up 8.2% from a year earlier, little changed from the year-on-year rise in 8.3% recorded in August.

Compared to the previous month, the headline CPI rose 0.4%, while the core measure rose 0.6%.

The S&P 500 fell 2.4% shortly after Wall Street’s opening bell on Thursday; before the opening of the markets, the futures market had indicated a gain of 1.3%. However, the shares staged a dramatic turnaround and closed up 2.6%. The Nasdaq Composite ended up 2.2%, recovering from a drop of around 3.2%.

The yield on two-year Treasury bills, which is sensitive to changes in monetary policy expectations, jumped 0.24 percentage point to 4.53%, its highest level since mid-2007, before falling back to 0.18 percentage point on the day.

Jamie Dimon, managing director of JPMorgan Chase, said that while he could not predict whether tighter monetary policy would push the US economy into a deep recession, the failure of markets to sell higher was an indication that the investors still believed in a “mild recession”. was possible.

“My point, in the harsh recession, you would expect the market to go down another 20 or 30 percent or so,” Dimon said Thursday at the annual meeting of members of the Institute of International Finance.

Dimon noted that consumer spending was still much higher than before the Covid-19 pandemic, adding that consumers “could probably do it for another nine months before inflation and spending caught up with them.” That’s why I think you’re going to see a strong economy for a while.

Investors and economists have been looking for signs that the Fed may begin to ease the pace of its interest rate hikes from the 0.75 percentage point increases it has announced at each of its past three meetings. . But CPI data released on Thursday suggests such a move is not yet on the immediate horizon.

Following the report, traders in the futures market put a 98% chance of the Fed raising interest rates by 0.75 percentage points in November, up from 84% on Wednesday.

Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said consumer inflation remained “stubbornly high” due to a “continued and widespread increase” in the prices of basic services. “High inflation readings will keep the Fed in aggressive tightening mode and on track for at least another 125 basis points this year,” she wrote in a note.

The futures market now expects the federal funds rate to hit 4.94% by May 2023, up from 4.65% the previous day. The central bank’s policy rate is within a target range of 3% to 3.25%.

One of the most disturbing features of the CPI report was that housing costs – described as “housing” in the data – rose 0.7% in September, as much as they had the previous month, and increased by 6.6% on an annual basis. .

Persistently high inflation has been a huge political challenge for the White House and congressional Democrats, overshadowing a rapid recovery from the pandemic with millions of jobs created since Joe Biden took office as president.

In a statement Thursday, Biden acknowledged that Americans are ‘pressured by the cost of living’ and said there was ‘more work’ to be done to tackle inflation even though ‘progress’ had been made. made. He said if Republicans take control of Congress in November’s midterm elections, “the daily costs will go up, not down.”

Republicans have made rising prices a central part of their message to voters, blaming the Biden administration and linking the rise to the Democratic-led stimulus package signed into law by the president in March 2021 that injected $1.9 billion. dollars in the US economy.

On Wednesday, several Republican lawmakers and candidates jumped on new numbers showing the Producer Price Index, a measure of wholesale prices for businesses, rose faster than expected in September.

Rick Scott, the Republican senator from Florida who chairs the Republican National Senate Committee, said inflation was an “unbearable kick to families trying to get back on their feet” in his home state in the wake of the hurricane Ian.

US consumers were relieved by the fall in gasoline prices over the summer: the peak in inflation under Biden has come so far in June, when the CPI rose 9.1% on an annual basis. But the administration and Fed officials would have liked to see the price increases fade faster than they did.

Additional reporting by Joshua Franklin in New York

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