Rising US producer prices put more pressure on the Fed to accelerate the pace of contraction

Producer prices in the US rose at their fastest pace on record in November, adding to pressure on the Federal Reserve to quickly ease its emergency policy settings during the pandemic. to curb rising inflation.

The producer price index released by the Bureau of Labor Statistics on Tuesday rose 0.8% in November, with an annual increase of 9.6%. That’s the fastest annual rate since the data was first collected in 2010.

The “core” producer prices also set new records. After excluding volatile items such as food and energy, prices rose 6.9% year-over-year, the biggest increase since August 2014, when the BLS first started the calculations.

The report comes at the start of a two-day meeting for the US central bank, actively debate how to adjust the amount of stimulus it is providing to an economy that is currently experiencing highest inflation for almost 40 years.

The Fed is expected to announce on Wednesday that it will scale back its asset-buying program more quickly, twice the rate it set out just a month ago. The goal is to end the bond-buying program a few months earlier to give the Fed flexibility to raise interest rates sooner.

Chairman Jay Powell set the stage for this turnaround weeks ago when he signaled in favor of an earlier exit in the face of what he said was increasing risks that inflation could become a problem. more persistent issue.

After focusing on some of the areas most sensitive to pandemic-related reopenings and supply chain disruptions, such as used cars and travel-related costs, inflation Consumer price inflation has shown clear signs of expansion.

The BLS noted that last month’s increase in producer prices was also “widespread,” with higher costs related to services, transportation and warehousing. Prices of scrap iron and steel as well as gasoline and food items also increased.

The Fed on Wednesday is also expected to signal more rate hikes next year, with further adjustments to be made in the years to come. In September, the last time the so-called “dot plots” of individual rate forecasts were released, Fed officials were evenly split on whether the lift from today’s near zero would happens in 2022 or not.

Now, economists predict the dot plot will show two rate hikes in 2022, followed by three or four further hikes in 2023 and again in 2024.

The moderate Democratic Party is promote The Fed must do more to rein in inflation, which has been politically toxic for the Biden administration as it seeks to pass the $1.75 billion Build Back Better spending bill. .

Republicans and some members of the president’s party have resisted the spending package, which follows another $1.2 billion bipartisan infrastructure bill, citing rising prices and painful costs. due to inflation imposed on Americans.

White House officials, like most economists, expect inflation to moderate next year, but are uncertain exactly when this will begin.

“The numbers are going to be pretty strong for at least the next six months, so that means the fallacies around inflation will continue to grow until the peak occurs,” said Alan Detmeister, an economist. out at the end of the first or second quarter,” said Alan Detmeister, an economist at UBS and a former Fed employee. “All of this is just going to be built over the next few months.”

Traders on Tuesday shifted their bets following the inflation report, prices rising by just under three-quarters of a point next year, based on the Fed’s futures contracts. Those trades only dropped to a late-November peak on expectations of how quickly the Fed will raise rates next year, before the coronavirus variant Omicron rattles the markets.

Treasuries sold off, pushing up yields on both 2-year and 10-year notes. Selling was strongest in longer terms, with 10-year yields rising 0.04 percentage points to 1.46 percent. Yields are inversely proportional to bond prices.

The potential for more hawkish policy from the U.S. central bank also weighed on the country’s $53 billion stock market, with the benchmark S&P 500 index sliding even further from its closing record high. door on Friday.