U.S. consumer prices in December rose to the level not seen in 40 years as rental accommodation and used cars remained solid, pushing inflation to 7%.
An escalated inflation bolstered expectations of the U.S. Federal Reserve to start raising policy rates as early as March and could be three more hikes for the rest of the year.
Used cars and trucks inflation are one of the most obvious transitory effects of the coronavirus pandemic, rebounding again to 37.3%.
Federal Reserve Chairman Jerome Powell said on Tuesday that the economy is both healthy enough and expected several interest rate hikes this year to curb rising inflation.
“As we move through this year, if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year,” said Jerome Powell while adding that at some point perhaps later this year the Fed will start to allow the balance sheet to run off, and that’s just the road to normalizing policy.
“If we see inflation persisting at high levels longer than expected, then if we have to raise interest more over time, we will,” stated Powell. “We will use our tools to get inflation back.”
