Inflation Hits New High, Increasing by 8.6%

(KNSI) – Inflation caught fire again in May, rising by 8.6 percent compared to a year ago, according to the United States Bureau of Labor Statistics. The figure is the highest rate in over 40 years.

Saint Cloud State University Economist King Banaian says it could force the Federal Reserve to alter its intended interest rate policy. “What’s interesting is that now it looks like the markets are expecting perhaps a larger than 50 basis point raise at the next meeting, which would be late July,” says Banaian.

The central bank’s Open Market Committee consists of Chairman Jerome Powell and a majority of the district bank presidents. Generally, there is an attempt to reach a consensus over monetary policy decided at the meetings. Growing dissension could make that impossible. Banaian says Powell might face a revolt from St. Louis Fed’s James Bullard and other “hawks.”

“If they would try to go 50 basis points in July, I would expect those who have been more vocal about needing to go faster and further, such as President Bullard, would dissent then,” says Banaian.

Current plans are for half-percent hikes for multiple meetings along with quantitative tightening. The Federal Reserve has over $9 trillion of treasury bonds and mortgage-backed securities on its balance sheet. Billions of those mature each month and the central bank has committed to letting $95 billion of that roll off without being reinvested by fall. The combination is intended to cool off inflation.