Economists say it is critical for the US Fed to raise rates and steadily tighten monetary conditions given that inflation is at a 40-year high and PCE core inflation is at a 30-year high. Recently, the chairman of the regulator, Jerome Powell, said he was ready to support a rate hike of 25 basis points at once. If this happens, it will be the first rate hike since 2018. Given the maximum inflation, the Central Bank will aggressively increase interest rates starting from the March meeting of the FOMC. Moreover, the Fed will be required to raise the federal funds rate at each of its remaining meetings this year. In essence, this will bring the Fed funds target rate to 1.75% by the end of 2022. What about inflation? The already significant supply chain disruptions have been exacerbated by the conflict between Russia and Ukraine. Since then, oil prices have risen by more than 25%. As you know, the United States is one of the largest exporters of commodities and energy in the world, in particular, oil, gas, commodities, metals and wheat. Economists are confident that disruptions in supplies and the recent surge in oil prices will inevitably lead to higher consumer prices in the short and medium term. Therefore, the upcoming Fed meeting will be very important for America in the current environment. Markets are looking for a 25 basis point increase this meeting, but rising inflation points to a 70% chance of a 50 basis point increase at the next meeting in May. The US Federal Reserve may raise rates four to seven times over the next year or two to curb economic growth, depending on the evolving situation. At the same time, it is noted that the Fed has never raised rates with such a flat yield curve and such high volatility.
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