US: If inflation remains around 7%, it will be hard for the Fed to stand by idly – Wells Fargo

Data released on Wednesday showed that US inflation reached 7% the highest level since 1982. Analysts at Wells Fargo point out that if CPI inflation is still around 7% heading into the March FOMC meeting, as they expect it to be, it will be hard for the Federal Reserva to stand by idly.

Key Quotes: 

“December's 0.5% increase in the Consumer Price Index marks a slowdown from November's gain, but the relative size should not detract from the absolute size which shows prices continue to rise at a menacing pace. The ongoing strength of inflation was underscored by the year-over-year change rising to 7%, which is the largest increase in nearly 40 years.”

“Although the exceptional pace of goods inflation and momentum in shelter costs are still firmly rooted in the pandemic, the increasingly tight labor market and ensuing wage pressures will make it difficult for inflation to fall back on its own. The FOMC has been discussing a more aggressive response to inflation in recent weeks, and with the core CPI still likely to be around 4% by the end of the year, we do not believe it will end up being just talk. If CPI inflation is still around 7% heading into the March meeting, as we expect it to be, it will be hard for the Fed to stand by idly.”