Demand has been underrated as a driver of inflation. But now the US central bank realises it’s time to ramp up interest rates to tame inflation.
| Economists predict the US Federal Reserve will consider raising interest rates by 0.75-percentage point at its meetings this week as it tries to bring down what looks to be worsening inflation.
“We are travelling by air and accepting the elevated flight cost,” Mr Doyle says of their planned trip to Colorado. “The reason the gas prices have risen so much is that Americans haven’t had a summer holiday for three years, and now they are.”Many economists now identify this resilient consumer demand as an important part of inflation, which hit another 40-year high last week.
US 10-year bond yields have now reached 3.36 per cent, up from 3.15 per cent on Friday when figures showed inflation hitJapanese bank Nomura updated its forecast this week and now expects a 75 basis-point rise, following others including JP Morgan. The Fed last lifted rates by that much at a meeting in 1994.
Just how far the Fed is willing to go to destroy demand is being predicted now by investors who are selling out of the sharemarket on the assumption that higher interest rates will cut company earnings and lead to a recession. Mr Kelly is reminding investors just how quickly sentiment can change and how resilient the US consumer can be.
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