Federal Reservations

Image source: Shutterstock - Brian A Jackson

What's going on?

Data out on Friday showed that US consumer prices rose at their fastest rate in nearly 40 years last month, but the Federal Reserve might want a minute to think twice about its next step.

What does this mean?

American consumer prices just won’t settle down: the dastardly duo of supply shortages and booming demand meant prices rose 6.8% last month compared to the same time last year. That’s the fastest annual rise since 1982, and a big jump from October’s 6.2% increase. And sure, a good chunk of that was due to rising food and gasoline prices – they’re up 6% and 58% respectively. But there’s more to it: prices were up across the board, with clothing, used cars, and housing rising 5%, 31%, and 4% respectively versus last year. That’s partly why core inflation – which strips out the typically more unstable food and energy prices – rose by 4.9% compared to the year before, and reached a 30-year high.

Why should I care?

The bigger picture: The Fed’s got a decision to make.
Investors are expecting the Federal Reserve (the Fed) to accelerate the wind down of its bond buying program at its final meeting of the year next week. While that could cool down rising consumer prices, there’s a snag: the latest jobs report for November showed a weakening jobs market. So if the Fed follows through, it could risk hurting that fragile market – and the wider economic recovery – even further.

Zooming out: And so does the Bank of England.
The UK economy isn’t feeling too hot, either: data out on Friday showed it grew by a worse-than-expected 0.1% in October compared to the month before. That’s a sharp fall from September’s 0.6% rise, and that was before Omicron emerged. That might make the Bank of England think twice about raising interest rates, which would make borrowing more expensive and risk further denting economic growth.

Originally posted as part of the Finimize daily email.

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