In the United States, how much rate hike is necessary?
The purpose of raising rates is to curb inflation. If inflation is restrained, rate hikes will likely stop for the time being. If further rate hikes occur, it would be what is called normalization.
This time, how much will rates be raised?
That is, in other words, how much rate hikes are needed to curb inflation, but the forecast is difficult.
The background to inflation is complex, as referenced below.
Background of global inflation: Kecofin investment information
What is especially notable is that, in response to rising prices, wages appear to be forced up, raising concerns about a wage-price spiral—rising prices → higher wages → wage-cost-push inflation.
Apple to raise pay for store employees in the U.S. — tight labor market - Bloomberg
Moreover, there are many differences compared with the past.
The current stance is delicate.
(1) Unlike before, after the Lehman Brothers collapse, the FFR has remained below the rate of price inflation. Real interest rates have been negative, and the economy has remained in a stimulative state.
(2) Usually, rate hikes have occurred somewhat sooner than or almost simultaneously with price increases. This time, despite such high inflation, no rate hikes have been implemented yet.
The title of the graph above is incorrect. The correct title is “FF Rate and U.S. Core CPI Increase Rate.”
Normally, monetary policy has been implemented in line with economic activity. This time, monetary easing continued even as the economy improved.Because maximizing employment was prioritized. What happens if the timing of rate hikes is delayed like this? There is no past precedent.
**In 2021, even though the economy was rapidly improving, the appropriate interest-rate policy was not adopted. That contributed to a stock price bubble.**However, rate hikes in the FF federal funds rate have not yet been implemented, while yields on 2-year Treasuries have already risen quite a bit. Even if the FF rate increases are delayed, the effect of rate hikes may still materialize.The title of the graph above is incorrect. The correct title is “Change in FF Rate and Change in 2-Year Interest Rate.”My conclusion is,
However, rate hikes in the FF federal funds rate have not yet been implemented, while yields on 2-year Treasuries have already risen quite a bit. Even if the FF rate increases are delayed, the effect of rate hikes may still materialize.
The title of the graph above is incorrect. The correct title is “Change in FF Rate and Change in 2-Year Interest Rate.”
My conclusion is,
