Lates News

Federal Reserve officials hinted on Wednesday that they may soon need to raise interest rates instead of cutting them in the face of rapidly rising inflation. This is a sharp shift in thinking. Evercore ISI analyst Krishna Guha said that the fall in energy prices may bring some relief in the coming months. But he warned that the outlook for interest rates has decoupled from oil prices, indicating deeper uncertainty about whether potential inflation will cool enough to prevent the Fed from ultimately raising rates. Guha said there are still two other pressures besides energy: the continuing transmission effects of tariffs, and cost spillovers from the artificial intelligence infrastructure investment boom. Claudia Sahm, chief economist of New Century Advisors and former Fed economist, said that the conditions that would typically prompt the Fed to respond to supply-driven inflation - such as an overheated labor market or unanchored inflation expectations - have not yet been seen. However, she acknowledged that the reasons for taking action are accumulating. "I can understand the argument that the Fed should be prepared to intervene and raise rates if the situation deteriorates," she said. The Fed's pace of action could be faster than when inflation soared during the pandemic, because "they have already been having this debate."