Inflation in the US was as high as 7,5%. Seven rate hikes this year?

This week's key event seems to have surprised investors as inflation in the United States rose to 7,5% annually. This represents the fastest price increase since 1982. As a result, there was speculation as to how Fed may react to such macroeconomic data.

The data may indicate that such a strong rise in prices in the US is related to rising prices energy costs, labor shortages and supply disruptionswhich was accompanied by strong demand. The biggest impact on inflation seems to be energy prices, which rose by 27% year on year, with gasoline prices increasing by 40%. Inflation accelerated in the case of food prices to 7%. Excluding the variable categories of energy and food, core CPI increased by 6%, the most since August 1982.

50 basis points up from 93% probability

As a result of the above data, very significant changes in the market could have occurred interest rate and bonds in the US, which can indirectly translate into USD, stock indices, gold or cryptocurrencies. Although the Federal Reserve officials recently seemed distanced from a possible 50bp rate hike in March, the interest rate market leaves no illusions. With a 93% probability, he is pricing in just such a rate hike next month.

If the Fed were to actually raise rates by half a percentage point, it would be the first such aggressive rate hike since 2000. There were also rumors that the Fed could call an emergency meeting between planned meetings to further accelerate the rate of rate hikes. According to Goldman Sachs, there will be seven interest rate hikes in the US this year.

Central banks decide about the attractiveness of the dollar and the euro

In the foreign exchange market, the first reaction seemed mixed, only in the evening the dollar started appreciating against the euro, breaking the level of 1,1380. The discrepancy in monetary policy between The European Central Bank and the Federal Reserve is likely to grow. In Europe, interest rates may rise slowly, cautiously and on a small scale, while in the US the market is waiting for a systematic increase in the dollar rate.

Yesterday the yield of 10-year US bonds exceeded 2%, which was the highest level in 3 years. In turn, the yield on 2-year bonds increased the most during the day since 2009. Their interest seems to exceed 1,6 percent.