1 reply to this topic

[pdx5]

One of the most senior economists in the United States says that the world's largest economy is still in the grip of an inflation crisis that will likely persist for the foreseeable future.

Key points:

• The US Consumer Price Index hit 8.5 per cent in July
• Loretta Mester believes the Fed rate will probably hit 4 per cent next year
• If US inflation and interest rates remain high, it will likely affect Australia

 

Loretta Mester is the president of the Federal Reserve Bank of Cleveland, which means she is currently one of the 12 people who determine the official interest rate in America.

In an exclusive interview with the ABC, Ms Mester had a warning for Americans struggling under the pressure of steep price rises. 

"I don't have enough evidence now to even conclude that inflation has peaked in the US," she said. 

This puts her at odds with claims from US President Joe Biden, who said inflation "may be, may be — I'm not over-promising — may be beginning to ease".

Mr Biden has been under huge amounts of political pressure to put a lid on price rises, which have reached multi-decade highs this year.

His government welcomed news that America's Consumer Price Index (CPI) hit 8.5 per cent in July, which while still high was down from a 40-year peak of 9.1 per cent in June.

But some economists were cautious about the data, especially given recent examples of inflation slowing only to re-accelerate in subsequent months.

Another bright spot in recent months has been the fall in petrol prices in the US.

[pdx5]

“The Federal Reserve right now is the main domestic actor on oil prices with higher interest rate hikes. The specter of recession is certainly in the oil market,” said Daniel Yergin, vice chairman at S&P Global and author of "The New Map: Energy, Climate and the Clash of Nations."

Administration officials have pointed to a Treasury Department analysis showing that Biden’s decision to release 180 million barrels of oil from the Strategic Petroleum Reserves contributed from 13 to 31 cents to the more than $1 drop in gas prices since their highs in June, with similar releases by other countries adding up to 11 cents more to the decline.

But there is no indication that Biden’s other efforts, like publicly shaming oil and gas companies over their record profits, calling an emergency meeting with CEOs and threatening to pull unused drilling permits, have had any effect on price or production, according to industry experts. While oil production has increased, it has done so at a pace similar to what was expected before Russia invaded Ukraine. 

“There hasn’t really been a policy that we can point you to that has helped the situation. When the executives met with the White House over the last few months, their primary message was don’t make it worse,” said Geoff Moody, vice president for government relations for the American Fuel and Petrochemical Manufacturers. “There were a lot of things that they were considering that they have not done that would have really exacerbated the situation. So to the extent that they want to take credit for anything, I would say it is by not interfering.”