- Matter this week showed inflation in April was still running hot and may not have peaked.
- Wall Street watchers groove on Mohamed El-Erian and Bill Gross say the Fed will need to get tougher on inflation.
- The Fed’s next policy meeting is in June, and could see it gather together interest rates sharply.
US inflation is running a lot hotter and through a lot more sectors of the restraint than expected and the
Federal Reserve
is under pressure to try to bring some of those price pressures down in front of they cause serious harm to the economy.
Data this week showed inflation rose more than surmised in April, up 8.3% year-over-year. This was below March’s 8.5% increase but above forecasts for a reading of 8.1% and appease at 40-year highs.
Stocks and bonds slid and the dollar soared to a 20-year peak, buoyed up by investors seeking juicier turns than they might find elsewhere.
Some market watchers believe there’s a case for the Fed to act even tougher on appraises, even raising them by three quarters of a point to try to stave off inflation.
Chair Jerome Powell said this week that the leading bank can only control the demand side of the equation, not the supply side, which has been a driving factor in the position in consumer price pressures.
“The question whether we can execute a soft landing or not, it may actually depend on factors that we don’t be in control of,” Powell told Marketplace in an interview.
The Fed raised interest rates by 50 basis points in May, the biggest increase at one congress in 22 years to quell inflation. The faster hiking cycle will primarily fight inflation by weakening requisition. Powell said further 50-basis points rate hikes would likely follow at the central bank’s behaviour meetings in June and July, he dismissed 75-basis point increases.
Economists like Mohamed El-Erian disagree and requirement readied on the Fed to move more aggressively, with Bill Gross and Liz Young saying the Fed would be prompted to do more to control inflation.
Here’s what a tally of market experts think:
Mohamed El-Erian, chief economic adviser at Allianz
Economist and outspoken Fed critic Mohamed El-Erian has called out the Fed for its dense response to inflation and called on it to do more.
He said the Federal Reserve needs to be blunt about taming rising inflation and requisite keep options open for larger rate hikes.
“The Fed right now needs to be a little bit more open minded, not try to only just give us good news. Be brutally honest,” El-Erian said in an interview with CNBC’s “Squawk Box” on Wednesday.
“They’ve got to be multifarious humble. They can’t take anything off the table,” he said. “You can’t say a 75-basis point is off the table.”
Bill Gross, billionaire investor and co-founder of PIMCO
“Unknowable for now but I imagine 3-4% CPI is where we settle in, absent continued hostilities in the Ukraine. The Fed has more wood to chop if it wants to return to the 2% straightforward.”
The “bond king” has previously been cautious of the Fed hiking rates too aggressively and risking a
recession
.
Peter Schiff, chief economist & universal strategist at Europac
“April CPI rose a more than expected .3%, with the core spiking .6%. Stocks and handcuffs are selling off as investors realize the Fed must fight harder to defeat inflation. What they don’t realize is that inflation has already won and the Fed ordain soon stop pretending to fight it.”
Liz Young, head of investment strategy at SoFi
“CPI +8.3% y/y is lower than last month, but not low adequate. We’re still in the thick of this. Fed has no reason to stop, so market has no reason to calm down yet.”
Bank of America strategists
“This examine leaves the Fed comfortable with front-loaded rate hikes in the near term. Bank of America view risks of 75bp hike that time low.”
“But clearly this report adds to the debate on the margin.”
Goldman Sachs strategists
“We expect significant growth deceleration, in prone terms inflation remains sufficiently above target that central banks will likely continue to hike.”
“The tightening in broader pecuniary conditions means the Fed will likely have to be less restrictive in its policy stance than we previously assumed.”
Seema Shah, chief strategist at Chairwoman Global Investors
“We expect headline inflation to only fade to 5.5% by year-end. With companies still flourishing impressive pricing power, inflation expectations elevated, the labour market red hot and supporting strong wage growth, and cover inflation still rising, the pressure on the Fed is going to remain intense. A couple more prints like this and a 0.75% fee rise may be back on the table.”
Richard Flynn, managing director, Charles Schwab UK
“Growth has weakened in the first months of 2022. During the pandemic, a double-barrelled help from high government spending and loose monetary policy kept the economy afloat. This stimulus has now upset; the Fed has embarked on a series of aggressive rate-hikes in a bid to tackle inflation, which is likely to put further pressure on consumer demand and cost-effective growth. The negative consequences of high prices are not in the rearview mirror.”
Silvia Dall’Angelo, senior economist, Federated Hermes
“Today’s inflation settle upon do little to assuage stagflationary concerns in financial markets. Inflation will likely remain sticky in coming months, sense that uncertainty about inflation developments and the Fed’s reaction function will linger, resulting in elevated market
volatility
. Today’s check in will also strengthen the Fed’s resolve to tighten aggressively at its coming meetings, crystallizing expectations of 50bp hikes in June and July.”