17th January 2022
The Cambridge Weekly
We may have barely begun 2022, but the US Federal Reserve (Fed) looks more determined than ever to keep its new year’s resolution. “Transitory” – the 2021 word of the year in capital markets – was officially retired by Fed chair Jay Powell back in November, and officials have talked tough on fighting inflation ever since. Patrick Harper, president of the Fed’s Philadelphia branch, was the latest to let out a hawkish cry last week, when he gave his support for raising interest rates in March. Current inflation levels are “very high, very bad”, according to Harper, who is even “open to more” than three rate hikes this year should US prices continue to jump. His concerns echo Powell’s, who used his Senate confirmation hearing last week to warn of the “severe threat” price instability poses to the US economy. Data released the day after the hearing seemed to underline Powell’s concern: inflation as measured by the consumer prices index (CPI) reached 7% year-on-year in December, a step up from November’s 6.8% and the highest annual figure since 1982.
Democrats’ Margin Call
Media reports on Jay Powell’s re-confirmation as Fed chair spoke a great deal about his tough inflation stance. Less discussed is the fact that Powell had a tough time himself when appearing before the US Senate. The Fed chair gained four more years, but not without a grilling from Democratic Party Senator Elizabeth Warren. The Massachusetts Senator took Powell to task over an insider trading scandal that has engulfed the Fed in recent months, and appeared to patronise him with an ‘econ 101’ lesson on competitive pricing.