Will Fed move to raise US interest rates after major spike in inflation ?

With inflation in the United States now reaching levels not seen in nearly 40 years, the expectation now is that the Federal Reserve will look seriously at raising interest rates in the months ahead.

Official figures released on Friday showed that prices increased overall by seven per cent in the last year and by 0.5 per cent in December compared with November.

Overall 2021 saw the fastest price inflation since the early 1980s amid strained supply chains caused by the pandemic, growing public demands for goods and a major government economic stimulus programme.

Steep increases in the cost of housing as well as used cars and trucks fed into the overall jump in inflation.

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US president Joe Biden took comfort that fuel prices and food costs were falling and that overall the rate of increase in price inflation was easing.

However he acknowledged that “we still have more work to do, with price increases still too high and squeezing family budgets”.

Biden also argued that inflation was a global phenomena as economies emerged from the pandemic.

However his Republican rival were having none of it and placed the blame firmly at the White House. Republincans particuarly point to the Biden stimuls plan for overheating the economy.

“Under Joe Biden everything costs more, store shelves are empty, and small businesses are struggling to hire workers and stay open. Joe Biden does not care about the hurt he’s brought on millions of Americans - with inflation at the highest level since 1982. Americans are paying the price for Biden’s failures, and Biden doesn’t care.”

The Biden administration has moved in recent weeks to take steps to ease inflation such as releasing fuel reserves in a bid to force a reduction in prices at the pumps. Fuel prices fell back by 0.5 per cent last month but remained 49.6 percent more expensive than a year ago.

A key concern now is whether the Fed will move to tackle inflation by raising interest rates and, if so, what impact will that have on a recovering economy.

At a senate confirmation hearing this week for a second term as Federal Reserve chairman, Jerome Powell signalled there could be a series of rate hikes this year as well as a winding down of other measures it had been undertaking during the pandemic.