Inflation in America is horrified, the Fed is forced to hoist interest rates?

Jakarta, CNBC IndonesiaInflation in the United States (US) is again a concern. Because the current high inflation is predicted to last a long time, not just temporarily. Therefore, the US central bank (The Fed) may be forced to raise interest rates, so that inflation does not get out of control.

The impact can be large, because the pace of economic growth can be hampered, especially if the labor market begins to weaken again. Yield US bonds (Treasury) also moved volatile yesterday. The 10-year tenor treasury briefly shot up 1.6%, but after that it turned down and ended trading at 1.5525%, or down 2.9 basis points from the previous day’s close.

Ascension yield This means that market participants release Treasury holdings, because there is an expectation that interest rates will be raised, so that low yields become less attractive.

When the yield turns down, it means that there is another buying action. This could be an indication that market participants are worried about the future economic outlook, and choose to play it safe in assets safe haven.

The impact of the decline in Treasury yields, the US dollar fell 0.46% yesterday, and continues today. The rupiah also successfully strengthened, touching Rp 14,150/US$ this morning, which is the strongest level in the last 6 months.

The US government yesterday reported inflation as seen from consumer price index (CPI) in September reportedly grew 0.4% from the previous month, higher than the yield polling Reuters against economists by 0.3%. Meanwhile, compared to September 2020, inflation rose 5.4%, higher than August’s 5.3% growth. year-on-year (YoY).

The inflation is the highest in the last 13 years.

Graph: United States Inflation (CPI)
Foto: Refinitiv

Meanwhile, core inflation, which excludes the food and energy sectors, grew 0.2% month-on-month (MoM), and 4% YoY.

Inflation is one of the main references for the US central bank (The Fed) in implementing monetary policy, for now is the time for tapering or reducing the value of the asset purchase program (quantitative easing / QE) and increasing interest rates.

The Fed actually looks more at inflation based on personal consumption expenditure (PCE) which will be released later this month. However, the CPI that is still rising can give an idea if the PCE will also continue to rise again.

Core PCE inflation in August grew by 3.6%, which was the highest growth in 30 years. If you follow the increase in CPI, then PCE inflation will certainly be higher.

Fed Chair Jerome Powell even said it was “frustrating” to see high inflation caused by supply disruptions (supply).

“Supply chain disruptions that don’t improve are frustrating, in fact they’re getting a little worse. We expect this to continue next year, and keep inflation at bay longer than we thought,” Powell said in late September.

NEXT PAGE >>> Market Sees Opportunity for Interest Rate Rise in September 2022

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