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Friday, December 16, 2022

What will the US FED do for this December meeting? - Part 2

Just as everybody had expected, the US FED hiked its rate by 50bp in December 2022.

Let's take a look at the latest Fed dot plot.

The chart is showing that the US will end with 5.1% interest rate in 2023 which is higher than its previous projection.  Why is the Fed keeping to its rate hike path when the US CPI is dwindling?

Well, the US CPI is declining because of the higher base effects from the previous year.  However, if we look at the sticky CPI, we will see a completely different picture.  The sticky factors include wages and rentals which are unlikely to decline after price spikes and these sticky factors will continue to maintain the sky-high inflation.

From the sticky CPI chart, we can see that the sticky CPI is still rising despite the headline inflation declining for the past few months.

The core sticky CPI is also showing an upward trend too.

Thus, the US Fed will continue on its rate hiking path because of the rising sticky CPI.

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