US Inflation Could Reaccelerate After Slight Pause if Fed Fails to Continue Boosting Rates

WASHINGTON (Sputnik) - US inflation could reaccelerate after the recent minuscule slowdown if the Federal Reserve fails to continue raising interest rates, economic analysts told Sputnik.

The US Consumer Price Index (CPI), the primary gauge for inflation, contracted modestly during the 12 months to September, growing by 8.2% from 8.3% during the year to August, Labor Department data revealed on Thursday.

However, economists polled by US media had forecast the CPI to grow by just 0.2% last month versus the August rate of 0.1%.

The Fed has struggled to contain inflation for more than a year, with the annual CPI remaining not too far from a 40-year peak of 9.1% in June.

"The Fed's [prime rate is] only at 3%-3.25%," former merchant banker, economic historian and financial analyst Martin Hutchinson told Sputnik. "My guess is the Fed will wimp out well before it gets to the 7-8% that would actually restrain inflation. If it does, inflation will re-accelerate."

IMPACT AND ROOT CAUSES

Retired Brown University Assistant Professor of Economics Barry Friedman warned that it will take more time than anyone wants to bring inflation down to the Fed’s 2-percent target.

There are some underlying forces that will also take time to resolve as so many producers and consumers revise their plans, regardless of monetary tightening, Friedman observed.

"That affects housing, business growth that depends on borrowing, international sales affected by strong dollar and wealth effects due to downward revaluation of stocks and pre-existing bonds," Friedman told Sputnik.

As the Fed continued to raise interest rates, stock market values would weaken as more investors found it prudent to switch to more cautious government bonds, and similar holdings, Friedman explained.

"With 'safe' short-term bonds and CDs over 4% and heading higher, there is an alternative to stocks that we haven't seen in more than a decade," Friedman told Sputnik.

International trade analyst Alan Tonelson said the inflation report underscores a stunning change on the cost-of-living front and how miserably Fed and Biden administration policies have failed.

Not long ago, Americans were debating how quickly raging inflation would end, Tonelson recalled.

"The new Consumer Price Index results, however, revealed not only monthly acceleration in the headline figure and a core reading that removes food and energy prices, but a speed up of annual core inflation to its fastest pace in nearly forty years. As a result, now the big inflation question before the nation is how deeply it’s become embedded in the economy," Tonelson said.

Independent Institute Center for Peace & Liberty Director Ivan Eland said the crisis can be traced back to the Biden administrations’ failure to respond more vigorously to pandemic-induced economic disruptions.

"Inflation is too much money chasing too few goods. It has been caused by the pandemic disrupting supplies of goods and too much money by consumers for spending - caused by Trump and Biden’s excessive spending on COVID relief and other items," Eland said.

The Fed thought inflation would be transitory so initially did nothing about it, he added, and now the market was reacting to the central bank’s demonstrated determination to raise rates steadily until it goes down, Eland added.