A big-bang Fed hike coming?

<p>Kia ora,</p><p>Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news that the Fed has not moved fast enough to keep raging inflation in check.</p><p>The headline news today is that <a href="https://www.bls.gov/news.release/cpi.nr0.htm" target="_blank"><strong>US CPI inflation hit 7.5% in January</strong></a>, a 40 year high. Although that was only just over analysts were expecting (+7.3%), markets felt they hadn't priced in enough so benchmark interest rates rose sharply, the USD slipped, and Wall Street is lower. Core inflation came in slightly higher than expectations too at 6.0% from a year ago, although it should be noted that the January month-on-month rises were pretty much the same as the month-on-month rises in December - and lower than for both October and November.</p><p>Driving these January rises are energy prices, and supply chain disruptions. They are across the board and include food which was up +7.0% - the only major category not showing large pressures were medical care costs.</p><p>The chances of an outsized rate hike at the Fed's March 17 (MZT) meeting is now high - <a href="https://www.bloomberg.com/news/articles/2022-02-10/fed-s-james-bullard-backs-one-point-rate-hike-by-july-1" target="_blank"><strong>maybe as high as +1%</strong></a> and taking it to 1.25%.</p><p>Meanwhile, US <a href="https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20220224.pdf" target="_blank"><strong>jobless claims</strong></a> came in lower than expected and lower than the prior week. There are now 2.0 mln people on these benefits, back at pre-pandemic levels.</p><p>The <a href="https://fiscal.treasury.gov/reports-statements/mts/current.html" target="_blank"><strong>US budget</strong></a> is expected to show a small surplus for January when the data is released later this morning. We will update this item then. Any time it show