U.S. Federal Reserve accelerates interest rate hike pace as inflation rises, avoids falling behind

[Washington Current Affairs] The growth rate of the US consumer price index (CPI) for October, announced on the 10th, was 0.4% compared to the previous month, exceeding expectations. Although the rise in crude oil prices due to the US-Iran conflict has come to a halt, inflationary pressures such as rising production costs due to high energy prices have spread over a wide range of countries. There is widespread speculation in the market that the Federal Reserve will accelerate the pace of interest rate hikes to avoid falling behind in eliminating inflation.

US long-term interest rates temporarily recover to 5% as 10-year bond rate rises

The growth rate of the core index, which excludes highly volatile energy and food, was 0.3%, the same level as last month. The prevailing view is that ``inflation is more persistent than expected'' (Fed.

With the economy remaining strong, the Federal Reserve is likely to prioritize achieving price stability and raise interest rates for the first time in two meetings at its December monetary policy meeting. Following the CPI announcement, the yield on the 10-year US Treasury note, an indicator of long-term interest rates, soared on the 10th. It briefly touched a milestone of 5%. It is the first time in about two weeks that it has reached 5%.

On the same day, President Logan of the Federal Reserve Bank of Dallas expressed strong caution about rising prices and stated that interest rates would need to be raised at least twice by 0.25%. "We will be able to move forward more quickly this winter than we did until the fall," he said, hinting at the possibility of accelerating the pace of tightening. Some in the market believe that ``the risk of the Federal Reserve raising interest rates further in January (advanced from next March) has increased'' (a major financial institution).

On the other hand, in a speech prior to the CPI announcement, Fed Director Waller, who is influential in the Fed's policy discussions, stated that if the core growth rate is 0.3% or higher, "we should consider raising interest rates by 0.5% at the December meeting." Interest rate futures markets are predicting that the Federal Reserve will decide to raise interest rates by 0.5%, twice the usual rate, at its December meeting. Whether or not strong measures are necessary will depend on the indicators that will be released in the future, but Waller's comments cast doubt on the theory of accelerating interest rate hikes.