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The Fed warns that it is “very far” from declaring victory against inflation | markets

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The publication of the CPI data for July in the US has shown a certain slowdown in the unstoppable rise in prices in the world’s largest economy, although it is far from enough to lower our guard, according to members of the Fed. of the Minneapolis Federal Reserve, Neel Kashkari, has assured that the Federal Reserve is “very, very far from declaring victory” over inflation.

His message reinforces the idea that the Fed wants to convey given the notable optimism shown by investors in equities, who have lowered their fear of a recession and who now trust that the US central bank can reduce its aggressiveness when it comes to raising interest rates. interest rates.

Kashkari, one of the members of the hard wing of the Fed, insisted that he has not appreciated “nothing that changes” the need to raise interest rates to 3.9% at the end of the year and 4.4% at the end of 2023, from the current rate range of between 2.25% and 2.5%.

Chicago Fed President Charles Evans has also insisted that inflation is “unacceptably” high. And he has pointed out that the Fed will probably raise rates to a band between 3.25% and 3.5% at the end of the year and between 3.75% and 4% at the end of 2023, more in line with suggested by Jerome Powell in the last appointment in July.

The CPI for July has moderated in the US more than expected, to 8.5% year-on-year from the estimated 8.7% and compared to 9.1% in the previous month. Although there are doubts that the data for June is the peak of prices and a clearer evolution in the trend will be necessary for the Fed to be able to draw conclusions that affect its rate of interest rate hikes.

At Pimco, the world’s largest bond manager, they acknowledge that the July CPI data is a relief for the Fed, although they grant a “relatively high probability” to a rate hike of 75 basis points in September. He warns that core inflation is likely to accelerate in August and believes it unlikely to peak until September.

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