Biden facing crisis as recession looms for US – inflation surges to 8.5 percent

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CPI inflation for the world’s largest economy has come in at 8.5 percent for March, slightly ahead of forecast and marking a 1.2 percent increase on the previous month. The reading is the US’s biggest spike in inflation since 1981 and comes following warnings the US could be faced with a recession as its central bank, the Federal Reserve, attempts to bring inflation under control. In an interview with CNN Business, Deutsche Bank Chief US Economist Matthew Luzzetti said: “We no longer see the Fed achieving a soft landing. Instead, we anticipate that a more aggressive tightening of monetary policy will push the economy into a recession.”

The Federal Reserve has already carried out one interest rate hike. It is expected to embark on a series of aggressive hikes in the coming months.

In a letter to shareholders, JPMorgan CEO Jamie Dimon warned of the combination of risks to US investors posed by inflation, rising interest rates and Russia’s invasion of Ukraine.

As in many other major economies, energy costs are proving one of the biggest drivers of overall inflation with the gasoline index up 18.3 percent for March.

Overall energy rose 32 percent year on year with food prices up 8.8 percent, the largest 12 month increase since 1981.

One measure not rising in the US is the President’s approval rating which has sunk to an all time low of 42 percent.

Mr Biden has been under increasing pressure to act on inflation, previously announcing the release of oil from US strategic reserves in a desperate bid to lower prices at the pumps for struggling motorists.

Hinesh Patel, portfolio manager at Quilter Investors, noted: “For the very short-term consumers with healthy levels of income and savings will be able to absorb this inflationary shock, especially given the household tax refunds coming their way.

“However, this remains an uneven recovery from the pandemic and it will be less well-off households that will struggle given the acceleration in prices we have seen in such a short time frame.”

The White House had previously tried to manage expectations, predicting inflation will be “extraordinarily elevated” earlier this week due to the pressure on energy prices from the Ukraine conflict.

However, opponents of the President have accused Mr Biden of trying to shift the blame, arguing inflation has been increasing since he took office.

Writing on Twitter, Republican Senator Ted Cruz labelled it “Bidenflation”, accusing the President’s administration of an “ever-shifting denial of reality about inflation”.

Pressure is also now likely to increase on the Federal Reserve with the higher reading providing greater confirmation of further interest rate hikes to come.

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Rob Clarry, investment strategist at Tilney Smith & Williamson, predicted: “In our view, this increases the probability that we will see 50 basis points hikes in the coming meetings.

“It also looks like the Federal Reserve will launch its quantitative tightening programme in May, which will see the Fed reduce the size of its balance sheet.

“This combination of higher interest rates and balance sheet reduction is likely to lead to slower economic growth next year.”

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