In view of the high inflation, Federal Reserve Chairman Jerome Powell indicated a first rate hike in March. The Fed will then also conclude its multi-billion bond purchases, and then raise the key interest rate over the course of the year and reduce its balance sheet, Powell said at his hearing in the US Senate. According to Powell, the greatest danger comes from increased inflation: if the high level of inflation takes hold in the economy and in people's minds, this will inevitably lead to tighter monetary policy, which in turn could choke off the economy. Powell's assessment is also supported by other senior central bankers. For example, Cleveland Fed President Loretta Mester, who is also a voting member of the Federal Open Market Committee (FOMC) this year, has signaled her readiness for a rate hike in March. She says there is much to be said for scaling back easing measures, and if the economy continues to develop as it is now, she would be in favor of a rate hike. Esther George, chairwoman of the Kansas Fed, is of roughly the same opinion.
On Wall Street, a faster pace on the part of the Federal Reserve has already been established in recent days and so the statements of Powell & Co provided more clarity and positive reactions. The Dow Jones Industrial closed half a percent higher and the S&P 500 gained almost one percent. The strongest gains were on the Nasdaq technology exchange. After tech stocks had recently suffered from increased interest rate expectations, tech indices rose by around one and a half percent yesterday. In Asia, the positive overseas environment also led to rising share prices.
ECB Chief Economist Philip Lane believes that the central bank's inflation expectations are not threatened even by the sharp rise in euro area inflation to +5%. Inflation will fall this year and will also settle below the ECB's target in 2023 and 2024, he said. At present, there is also no indication that the high current inflation will lead to higher wage settlements. Lane expressed his conviction in an interview with an Italian newspaper. According to the current forecast, the ECB expects an inflation rate of +1.8% in both 2023 and 2024. The central bank will publish new forecasts in March.
On the occasion of his inauguration, the new head of the German Bundesbank, Joachim Nagel, stressed that the medium-term inflation outlook is extremely uncertain and that the ECB is therefore called upon to adjust its monetary policy stance if price stability requires it. According to Nagel, there is currently a risk that inflation could remain elevated for longer than currently expected. The annual rate of consumer price inflation in Germany last reached +5.3% in December, the highest level since June 1992. Bundesbank President Nagel succeeds Jens Weidmann, who left office prematurely for personal reasons after around ten years.
|11:00||EZ||Industrial Production (November, m/m)||+1.1%|
|14:30||US||Consumer Prices (December, m/m)||+0.8%|
|14:30||US||Consumer Prices (December, y/y)||+6.8%|
|14:30||US||Core Consumer Prices (December, y/y)||+4.9%|
|20:00||US||Fed Beige Book|
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