Meanwhile, a new speech by Fed Chairman Jerome Powell took place. Much attention is now focused on his speeches, since already in May the regulator may raise the rate by 0.5-0.75% at once. Thus, the market is frankly worried about this question, and Powell and the company can theoretically answer it without waiting for the meeting itself. However, yesterday Powell was talking about Ukraine. In particular, he noted that "America is further from the conflict than the European Union, so the consequences will be weaker." "However, inflation is expected to increase in the United States due to the military conflict in Ukraine and the weakening of industrial production," Powell said. In the European Union, as we said earlier, the consequences can be much more serious. Food and energy crisis.
At the same time, the head of the San Francisco Federal Reserve, Mary Daly, said that the key rate should be raised to 2.5% by the end of the year. She said that at several in 2022, the rate could be raised by 0.5% at once, and also noted that the Fed does not yet know how far rates can rise above the neutral level of 2.5% to stop inflation. Daly also noted that inflation is not at its peak yet, as the Ukraine-Russia conflict, lockdowns in China, and disruptions in supply chains will continue to harm price stability. Thus, Daly made it clear to the markets that she is unlikely to support a 0.75% rate hike in May, in her opinion, it is necessary to act cautiously, with clear long-term goals.
At the same time, the head of the Federal Reserve Bank of Chicago, Charles Evans, noted that he sees no reason to expect inflation to fall to the target level even next year. He only expressed the hope that the factors that provoke an increase in inflation "will cease to intensify." Of course, Evans is talking about the conflict in Ukraine and "lockdowns" in China, which lead to even greater disruption of logistics chains. We recall that we have repeatedly talked about further inflation growth. Moreover, not only in the United States but also in the European Union, where yesterday ECB Vice-Chairman Luis de Guindos announced a possible rate hike in July. That is, inflation will grow everywhere, although in Europe they still hope for its "independent" decline. The ECB can certainly raise rates, but unlike the United States, this will lead to an "excessive cooling" of the economy. Recall that in the last quarter, EU GDP grew by 0.3% q/q, and in the States - by more than 6%. In the United States, the economy is "overheated", which allows for multiple rate increases, and in the EU, if I may say so, it is "under heated" and raising rates will lead to a recession. But even if we take into account only the States, raising rates may not begin to have a positive impact on inflation very soon. We believe that the acceleration of price growth will continue in the next few months.
