Economists says inflation dangers highest in 20 years and will power Fed to boost rates of interest in 2022

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US Federal Reserve leaders keep saying they have no plans to hike US lows for several years, but a growing number of economists believe a faster recovery and high inflation will force the central bank to act faster act.

Around 46% of members surveyed by the National Association of Business Economists predict that the Fed will hike a major short-term interest rate in 2022, at least a year before the central bank itself expects it to.

The most recent economic forecast by the central bank does not forecast any increase in the so-called Fed funds interest rate until after 2023. The interest rate, now close to zero, affects the cost of borrowing for consumers and businesses.

Although the central bank kept the key interest rate near zero throughout the pandemic, US Treasury and mortgage rates have risen again due to the improving US economy and a setback in inflation.

Annual inflation, which fell to near zero last summer, is up nearly 1.5% and is expected to top 2% later this year.

Some economists believe that inflation could rise much higher due to faster growth, higher prices for business materials, or a limited supply of key items such as computer chips or lumber used in a number of products. New government incentives worth nearly $ 2 trillion could also spur demand and further weigh on the cost of goods and services

“A majority of the panellists believe that the risk of inflation is higher than it has been in the last two years
Decades, ”said Manuel Balmaseda, President of NABE and Chief Economist at CEMEX.

The Fed aims for inflation averaging 2% over an unspecified period of time using a price barometer known as a PCE. The index is the Fed’s preferred inflation indicator.

The Fed itself expects the annual PCE inflation rate to rise to 2.4% this year and drop back to 2% by 2022.

Richmond Fed president Thomas Barkin said a rising DJIA on Wall Street, + 0.25% expectations of higher inflation was a natural response to an economy getting better. He called it a “good thing” as long as interest rates “don’t get out of hand”.

“Yields increase when there is good news. You should expect the market to adapt to the news, ”he said during an interview at the NABE annual conference. “If the economy improves, yields would be expected to rise.”

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