WEEKLY E-MAIL

20 February 2023

US INFLATION

By Ngoc Christodoulou

US inflation slowed slightly to 6.4% in January 2023 from 6.5% in December but was still higher than expectations of 6.2%.

The US inflation rate might have peaked at 9.1% in June 2022; however, the current rate is still well above the Federal government’s 2% inflation target.

Indicators show that US economic growth is resilient and more robust than anticipated, with the 2023 first quarter GDP forecast at 0.50% versus 0.30%.

The continual increase in employment and strong consumer confidence reflects that there is still persistent pent-up demand for services, as shown below:

The labour market remains tight, with unemployment at 3.4%, the lowest since 1969. The Federal Open Market Committee (FOMC) has projected an unemployment rate of 4.6% by the end of December 2023. For this to occur, the US economy will need to shed 100,000 jobs per month, which seems unlikely.

Continued economic momentum continues to challenge US monetary policy. The current Fed Funds rate is 4.5%, with a forecasted upper bound terminal rate of 5.5%, up from 5.25%. There is an expectation that the FOMC will continue tightening with a March hike and further rate rises, with anticipated rises of 25 basis points in May and June.

The question remains if the Federal government can bring inflation to target levels in a tight labour market.

Ngoc Christodoulou
Associate Financial Planner
Authorised Representative No. 1271825

If you have any questions or comments, please email me at ngoc@gfmwealth.com.au

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