Inflation in America has reached an all time high since 39 years ago, currently 7% and still going up. Canada also reached 4,8%. This inflation level can be dangerous if not properly controlled and become a hyperinflation risk. When it happened, it weighed so much for the economy itself, slowing growth, recovery, and employment.
On 26th of January 2022, Bank of Canada and The Fed released their statement regarding monetary policy. The Bank of Canada saw inflation happen because of the omicron effect that slowed recovery economic, supply material, and high commodity prices, meanwhile the recovery itself projected slower than 2021, from 6,75% to 3.5%. It makes the Bank of Canada choose to maintain the rate at 0.25%, until economic global recovery grows faster. The Bank Of Canada will maintain this rate to support Canada due to the recovery of the economy. Inflation target still at 2%.
The Fed has a different perspective, employee growth consistently at a good pace, economic recovery after the pandemic is good, and unemployment significantly decreases. Inflation happened because of multifactor, which are the economy itself, supply chain issues, and high commodity prices. Vaccination programs also affect economic recovery. Pandemic risk, and supply chain issues are still the main risk for economic recovery. With current inflation pace, The Fed will take several policies like increasing interest rate and decreasing its balance sheet afterward. Quantitative Easing will end at the end of February and then the Fed is expected to increase the interest rate in March. From the Jay Powel statement, The Fed will react due to inflation pace getting faster than predicted.
The Fed is already hawkish, America’s economic recovery is at a good pace, is it a sign of a strong USD?
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