Fed calls for emergency meet to tackle 40 year high Inflation

The Fed has called for an emergency board meeting on 14 February post the inflation numbers announced last week. Let us look at the inflation numbers and the possible agenda of the Fed's meeting.

Highest inflation in 40 years

• Inflation in the US climbed to its highest level in 40 years in January. The Bureau of Labor Statistics reported that the prices have increased by 7.5% from a year ago.
• The rise in the consumer price index (CPI) survey – which measures the costs of a wide variety of goods – was the highest since February 1982.
• CPI was 0.6% higher compared to December month.
• Inflation has been driven higher by soaring demand and a lack of supply caused by Covid-19’s global impact on trade.
• The largest contributors to the increase in price were food, electricity, and shelter. The food index and the energy index both increased 0.9% over the month.
• Used cars prices were 40.5% higher in January compared to a year ago. Housing costs rose 4.4% from a year ago.

Fed's meeting

• The scheduled meeting for the Fed was in March. It was expected that the Fed would start its tightening cycle with a 50 basis point rate hike at its March policy meeting, followed by consecutive rate hikes at the subsequent meetings.
• Now it has announced a closed board meeting of the Board of Governors of the Federal Reserve System at 11:30 a.m. on Monday, February 14, 2022.
• The matter to be considered is - "Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks."
• Some traders and economists have started speculating that the central bank might introduce the first interest rate rise in this meeting.
• Another set of experts believes that the Fed is highly unlikely to take such a step as it is reserved for urgent course corrections in extreme circumstances.

What does it mean for investors?

The Indian equity market closed sharply lower on Monday. The two indexes NIFTY and SENSEX crashed more than 3%. The market was expecting a rate hike in March and the news of a rate hike in February has come as a surprise to many. The market never enjoys unexpected events and reacts as it did today. Investors should closely watch today's meeting outcome and plan their investment based on the outcome. We will keep you posted on the outcome of the Fed's meeting.