FEBRUARY 14, 2022 – INFLATION KEEPS RISING PUTTING PRESSURE ON INTEREST RATES
Inflation rose again in January by 0.5 percent, it’s now running at a 7.5 percent annual rate, the highest since 1982. For comparison, inflation was at 1.8 percent just ahead of the start of the pandemic. The core-price index, excluding food and energy, climbed to 6 percent in January, up from 5.5 percent in December.
The 10-year treasury note rose to 2 percent for the first time since mid-2019 last week. Even though wages were up 5.1 percent annually in January, they still lag inflation. If workers do not think inflation is transitory, they may start demanding even greater raises. The current pressure on prices and wage increases may encourage the Fed to raise rates more than expected to try to cool down inflation.
70 percent of investors think there is a chance the Fed will raise short-term rates to at least 1.75 percent by the end of 2022, that’s up from 22 percent a week ago, and from 1 percent a month ago. The Fed next meets on March 15-16, when 50 percent of investors expect a 0.5 percent increase. The Fed hasn’t raised rates by greater than a 0.25 percent increment since 2000.