Fed To Raise Rates Above 5%?
Jamie Dimon thinks so. As Chairman of the Board and Chief Executive of JPMorgan Chase & Co., a global financial services firm with assets of $3.2 trillion and operations worldwide he should be in a pretty good position to offer useful information about where the economy is heading.
There’s a 50% chance current expectations are correct in assuming the Fed will boost its benchmark rate to about 5%, and a 50% chance that the central bank will have to go to 6%, the JPMorgan Chase & Co. chief executive officer said in an interview aired Tuesday on Fox Business.
“I’m on the side that it may not be enough”, Dimon said. “We were a little slow getting going. It caught up. I don’t think there’s any harm done by waiting three or six months”.
On the economy, Dimon reiterated comments he made throughout much of last year, saying that while the consumer is still strong, heightened risks remain. He cited the impact of Russia’s invasion of Ukraine and quantitative tightening. _ Yahoo Finance
Markets Are Underestimating Inflation
Some of the world’s largest asset managers such as BlackRock Inc., Fidelity Investments and Carmignac are warning markets are underestimating both inflation and the ultimate peak of US rates.
After Wall Street virtually universally overestimated the trend of inflation, the stakes are quite high. $18 trillion was lost in global stock markets, while the US Treasury market had its worst year ever. The Federal Reserve's 2% objective for inflation is still expected to be reached within a year, according to inflation swaps, despite the fact that the money markets are wagering the central bank will begin lowering rates.
That’s set markets up for another brutal ride, according to Frederic Leroux, a member of the investment committee and head of the cross asset team at €44 billion ($47 billion) French asset manager Carmignac, since worker shortages are likely to fuel higher-than-expected inflation.
“Inflation is here to stay”, said Leroux in a phone interview.
“After the crisis, central bankers thought they could decide the level of interest rates. In the past two years they realized they don’t: inflation does”.
He added that one of the biggest mispricings in the market today is the expectation that inflation will come down to 2.5% next year, before adding that the world is entering a macroeconomic cycle comparable to between 1966 and 1980. That period saw energy shocks that drove US inflation into double digits twice.
“We have to live in a very different environment than before”, Leroux said. Gold, Japanese stocks and trusty, steady companies will make a comeback, in his view, as negative real yields persist and central banks will be unwilling to inflict too much pain.
On Thursday, Fed officials reiterated the central bank’s hawkish stance with comments that sought to dispel hopes for an imminent reversal in the policy path. On Friday the European Central Bank’s Chief economist Philip Lane echoed that sentiment, saying price pressures will remain elevated even if surging energy costs ease. - Yahoo Finance
Services Inflation Spikes to 4 Decade High
Services account for about two thirds of consumer spending. Housing, insurance, healthcare, education, reservations for travel and hotels, subscriptions, streaming, telephony, and haircuts are among the services offered.
The Fed has been discussing services price inflation for several months. The CPI for services increased by 0.6% from November to December and by 7.5% from year to year, the worst rate of growth since 1982. Additionally, it was the fourth consecutive month that the percentage exceeded 7%:
Despite the ongoing large mega-downward adjustment of health insurance, the increase in the services CPI nonetheless took place. The CPI for services would have been substantially worse without that modification.
The cost of health insurance is subject to annual modifications by the BLS, which are then dispersed throughout the ensuing 12 months. The third month was December. The CPI for health insurance decreased by 3.4% in December compared to November as a result of this change. Mega-adjustments made over three months lowered the CPI for health insurance's yearly rate from 28% in September to 7.9% in December.
The CPI for “Food away from home”– prices at restaurants, vending machines, cafeterias, sandwich shops, etc. – rose by 0.4% for the month and by 8.3% year-over-year, the fourth month in a row of around 8.5%, the worst since 1981.
The CPI for “food at home” – food bought at stores and markets – rose by 0.2% for the month and 11.8% year-over-year, the 10th month in a row with double-digit year-over-year increases. - Wolf Street
