Welcome back to closing balance cheddar news. Everyone today
is january producer price index data showing that inflation is
not slowing down as we started the new year.
The number rising 1% month over month 9.7% from the
same time a year ago and so called core PP
. I also rising 9/10 of a percent and increasing
6.9% from the same time last year. The price
of goods continues to outweigh the price of services and
produce servicing prices for both energy and food continued to
rise. This data coming after last week's consumer price
index which did rise 7.2% year over year as inflation
continues to run hot. How will it impact monetary
policy Joining me now is Beth Ann bovino, U
. S. Chief economist at S. And P
global ratings. Beth ann thanks so much for coming
on the show your reaction to today's inflation data.
It was well let's put it this way for both
myself and for markets that was twice what we were
expecting. So it was extreme. But you know
what we're getting used to these extremes. We see
it in in wage data, we see it in
the P. P. I. We see it
in C. P. I. It's something that
unfortunately we're getting used to. I see a headline
here to storing lumber prices adding nearly$19,000 to the
cost of a new home. So certainly we see
it rising I think really across every single industry um
at least with the consumer prices that we got not
too long ago. What does this mean for interest
rates and the Fed's ability to try to cool inflation
by raising rates? I think the Fed, the
Fed has indicated that they're going to be moving quickly
. And I do want to say that when a
lot of people businesses complain about wage gains, which
are at a 20 year high at this point,
according to some indicators, that also means that that
also means that in real terms, unfortunately, some
of that time is near zero or under or actually
gains are actually negative territory that nobody's happy for the
Fed. Uh they seem to indicate they've indicated pretty
, pretty strongly that they're going to move very quickly
. They haven't changed their forecast yet, that's gonna
come out soon, but we expect that a March
rate hike is in the is basically pretty much baked
in the cake. We think 66 rate hikes in
total for 2020 to 6 rate hikes. And of
course, I think the question is by how much
we heard from ST louis Fed President James bowler just
yesterday saying that he thinks these rate hikes should be
front loaded to combat high inflation right now. Do
you agree with that? I think that the Fed
needs to move more quickly. They're getting the they
are now indicated by markets to be behind the curve
. Markets already have priced in that the Fed,
the Fed seems to be sitting on their sitting on
their heels with just three rate hikes in the so
called dot clark spots. The that's the independent uh
independent surveys of the Fed Fed members. So where
markets are pricing in five rate hikes were saying six
. So I think that the Fed needs to move
quickly and fast to go to go ahead. Uh
talk is that they're going to have a 50.
They could have a very much a 50 basis point
hike in March. I think they might not move
that quickly. I think they're, you know,
they're taking this old interest rate policy out of the
out of the garage. They might want to drive
it around a little bit. But I do think
a forceful move will be coming soon. And then
we do of course the bond yields rising above 2%
on the 10 year Treasury yield, which has been
moving in tandem with inflation expectations of course, as
producer prices surge, we do see that 10 year
Treasury yield rising along with the expectation. As we've
been discussing that the Fed will be raising rates.
Can that effectively cool inflation beth And I mean,
what are your expectations for inflation going forward this year
in the second half. Do you anticipate that we
will start to see these numbers come down the rate
and lower a bit. I think the Fed,
the one thing the Fed is good at and then
they are good at containing inflation and how they do
that by tightening monetary policy, which is what they
planned. The reason why you had mentioned the reason
why they need to move a bit more forceful in
uh in addressing these skyrocketing inflation numbers is because of
the concern that is inflation expectations or inflation is becoming
so called persistent. You mentioned inflation expectations. Those
are 10 year highs at this point. The Fed
wants to bring that in and that's why they want
to move very quickly. I think though if they
do do this which is they seem to indicate as
such. That means that by towards the end of
this year I suspect that we're going to start to
see inflation getting closer to the Fed's target of 2%
. Not quite there yet. But I think that
they'll they'll be on their way. Let me ask
you this quickly. Bethan we don't have much time
left. But can the Fed effectively raise rates and
still avoid a recession? We think that we think
the Fed is going to slow the economy not stall
it out. That's what our forecast is at this
point in time. And let's hope I'm right.
All right. Beth Ann bovino U. S.
Chief economist at S. And P global ratings.
Beth ANn thank you so much for taking the time