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Tuesday, May 17, 2022

“Dangerous” US Indicators… Will the Central Bank Respond and Raise Interest Rates? The question of the hour

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The cost of US imports rose sharply last month, so will the US central bank respond and accelerate rate hikes?

US import prices rose strongly in February, affected by significant increases in oil and food costs, indicating that inflation in the world’s largest economy will remain high for a short period .

The US Department of Labor said on Wednesday that import prices rose 1.4% last month, after rising 1.9% in January.

The US Federal Reserve meets to review interest rates for two days, with its meeting ending later on Wednesday.

In the twelve months to the end of last February, prices rose 10.9%, following a 10.7% rise last January, according to Reuters.

Economists polled by Reuters had expected import prices, which do not include customs duties, to rise 1.5 percent.

The data did not follow a jump in the prices of oil and other commodities, such as wheat, following the Russian invasion of Ukraine on February 24.

The report comes after data on Tuesday showed US producer prices rose sharply in February, buoyed by higher gasoline and food prices.

Last week, the US government announced a sharp increase in consumer prices in February.

The rise of Wall Street, supported by optimism for a truce

And major US stock indices rose early on Wednesday, buoyed by optimism amid signs of progress in Ukraine-Russia peace talks, and an expected hike in interest rates by the Federal Reserve.

The Dow Jones Industrial Average began the trading session on Wall Street, rising 0.33% to 33653.93 points.

While the reference index “Standard & Poor’s 500” rose 0.60% to 4,288.14 points.

The Nasdaq Composite Index jumped 1.32% to 13,119.37 points.

US interest rate expectations

Expectations are that the US Federal Reserve (the central bank) will start the monetary tightening cycle by raising interest rates by 25 basis points after its meeting on Wednesday.

Market watchers previously expected the US Federal Reserve to raise interest rates by 50 basis points at a time, but uncertainty related to the war in Ukraine changed the calculations.

These expectations are in line with testimony given by Federal Reserve Board (FRB) Chairman Jerome Powell to Congress on March 2-3, 2022, before the US Financial Services Committee. the US House of Representatives

“I am inclined to suggest and support a 25 basis point rate hike,” Powell said.

Prior to this note, Powell said: “With inflation above 2% and the labor market strong, we expect it to be appropriate to raise the target range for the fed funds rate at our meeting later this month.”

His testimony was part of the semi-annual process in which the Fed reports monetary policy to Congress.

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