The British Brief

As shown by the graph below, last week the US consumer price index (CPI) jumped to the highest level since the 2008 Financial Crisis, reaching 5.4% Year-on-Year (Y/Y), compared to the expected 4.9%. The Core reading showed the largest Y/Y increase since November 1991, coming out at 4.5% compared to the expected 4.0%. Due to the current circumstances, this rapid increase in inflation would not normally warrant the need to worry, as this is bound to happen due to a year of pent-up demand. However, there is worry, especially among leading economists such as Lawrence Summers, that the Fed has been extremely excessive in their  support and that, without monetary tightening, we may soon be heading to an overheating of the economy.  As of now though, the insistence by the Fed that this high inflation is only transitory seems to be supported. Looking below at data from the US Bureau of Labour Statistics, we see that the main factors driving up inflation are energy prices and used cars (highlig

According to the Financial Times, the likelihood of rate hikes before the end of 2023 is now very high among economists. In a joint survey with the University of Chicago, 52 economists were polled on their views on whether they believed interest rates would be 50 basis points higher by the end of 2023, the results are shown below, in the form of a dot-plot, as used by the Fed. The results are  striking and closely resemble the sentiment of the Federal Open Markets Committee (FOMC) in the recent dot-plot published by the Fed after the June policy meeting, which is shown below. The views of the FOMC and that of academic economists being closely aligned means a scenario where interest rates are at least 50 basis points higher by the end of 2023 is now very likely to happen as a hawkish view is starting to take hold among both economists and the FOMC alike.  What will be the driving factor for rate hikes by the Fed?  In my opinion, the Fed is worried about the recent rising inflation, reac