After the Fed’s “ultra-loose policies of the past couple of years, a tightening is certainly justified, but it needs to be carried out judiciously and with realistic expectations,” JohnCassidy writes.
, as measured by the Consumer Price Index, hit a forty-year high of 7.5 per cent in January. The even worse news is that there is now a serious danger that the Federal Reserve will overreact and drag the economy into a recession by dramatically raising interest rates. Following the release of the inflation data on Thursday, Wall Street expects a half-point hike in the federal funds rate at the next Fed meeting—the biggest single increase since 2000.
Why all the alarm over such a small upside surprise? Inflation hawks point out that the C.P.I. report indicated that higher prices, which had been largely confined to physical goods, such as cars and furniture, are now spreading to the much larger services sector, which makes up about three-quarters of the economy.
In the goods sector, which the supply-chain problems have hit hardest, there were some signs of inflation easing. The price of new cars, which has shot up during the pandemic as auto manufacturers have exploited shortages to cut promotional discounts, actually stayed level in January. The cost of used cars, which has risen even further, went up again, but the rise was less than half the previous month’s—1.5 per cent, compared with 3.3 per cent.
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