Inflation has always been a part of economic ups and downs. But last year, it became a panic-inducing word that could shake up economies in a blink. The US witnessed the highest annual inflation on record, as it surpassed a 40-year-high.
Inflation is also one of the biggest CEO concerns this year, closely followed by supply chain issues and skilled labor shortages.
The annual inflation rate for the US stood at 6.4% for 12 months for the year ended January 2023. As business executives make plans to rein in the effects of inflation, JP Morgan chief Jamie Dimon suggested that although the economy appears to be in recovery, the Fed might keep interest rates high to tame inflation.
According to Dimon, the Fed will keep interest rates high until inflation cools down to a manageable 2%. His comments came shortly after the US Federal Reserve revealed the minutes of a meeting regarding monetary policy early this month.
JP Morgan CEO Predicts Interest Rates Will Stay High
Jamie Dimon pointed out the fact that the US job market has been doing well and people are spending money, albeit a little cautiously.
The JP Morgan boss feels that reining in inflation is a work in progress and the Fed will play it safe to avoid a catastrophe later. In an interview with CNBC’s Jim Cramer, he mentioned that he feels the Fed lost a “little bit of control of inflation.” His comments come close on the heels of a meeting of Federal Reserve officials.
In the meeting minutes released to the public, officials have admitted that there are signs inflation is easing, but not enough to counter the need for more interest rate hikes. As inflation continued to stay above the Fed target of 2%, members are concerned that inflation is still a threat and must be dealt with cautiously.
The summary reveals that members believe on-going rate hikes will be necessary to prevent runaway inflation. Consequently, the Fed has approved a 0.25% hike, its smallest hike since March 2022.
Jamie Dimon appears to agree with the move and stated that it will take the central bank some time to achieve its goal of bringing inflation down to 2%. He also acknowledged that “the US economy right now is doing quite well. Consumers have a lot of money. They’re spending it. Jobs are plentiful.”
In December of last year, Dimon had warned of an impending recession as high inflation eroded consumer wealth and wiped off trillions from the economy.
US Inflation Slows Although Economic Uncertainty Prevails
The annual inflation rate in the US hit 6.4% in January 2023, a slight decrease from 6.5% in December. Although it is not very heartening, it is encouraging to see the numbers slip from a record high of over 9%.
Last month, the Consumer Price Index (CPI) for all urban consumers rose by 0.5%, as per data collected by the US Bureau of Labor Statistics. The labor department noted that rising gas, fuel, and shelter prices contributed to the increase, as consumers struggled to manage budgets amid rising costs.
While price increases wreaked havoc on household budgets and organizational forecasts last year, the latest CPI report indicates that inflation is still at a worrying point. As such, the Fed is concerned about the economy slipping into a possible recession 2023.
Since March 2022, when the Federal Reserve began implementing tightening measures, the agency has hiked interest rates eight times, not including the recent approval for 0.25%.
Economists are of the opinion that the Fed needs to put in more work to bring inflation under control and well below 2%, to infuse confidence in the economy. While the Fed scrambles to get control over inflation, whispers of a recession in the latter half of the year have already put many on defensive mode.
However, despite the grim predictions, there is concrete data that the economy is on its way up. Unemployment rate has fallen to 3.4% and the January jobs report shows nonfarm payrolls increased by 517,000, more than double the 187,000 market estimate. It is easy to get caught up in the wave of tidal gloom when news about tech layoffs continue to come in but the unemployment rate is currently at its lowest in over half a century (May 1969).
With just one month behind us, it remains to be seen how the economy will fare the rest of the year, as employment and business activities go up.
