[Music] So we're getting a closer look at how Rising inflation is directly impacting The u.s economy and americans wallets New data out today shows prices hitting Their highest levels in 40 years and Inflation skyrocketed seven and a half Percent over the past year alone today's Numbers reinforce the fed signal that it Will raise interest rates in the near Future as americans struggle to deal With soaring costs so michael pond is Joining us now he's the head of Inflation research at barclays so glad You're here i am one of those people i'm Looking at the possibility of buying you Know a new car not a new car actually a Used car but to replace my old car And it's not looking good it's not Looking good at all um what are your Reactions uh to to these numbers Yeah it's not looking good emery and Used car prices are up 40 Year over year uh so you're going to pay A lot more than you would have a year Ago and overall Prices are up about seven and a half Percent uh compared to a year ago that's The highest level as you as you Mentioned in in 40 years now we do think That most of the inflation pressures That we are seeing and are likely to see For the next couple months are pandemic Related
So it's it's easy to say that once we Get through this pandemic inflation Pressures will come down but clearly From today's report we're just not Seeing it yet All right well can we talk about what Role the pandemic may be playing and What it's not responsible for it's going On it's been going on for two years now Sure it's good it's coming through many Different channels so one of the the Channels that is coming through is Supply chain disruptions i'm sure you You and your your viewers hear that a Lot mostly when we think about supply Chain disruptions we think about uh Imports from from china or or generally Abroad and that shipping rates are are Up and that there's just a lot of delays In getting goods into the us but another Important supply chain channel is the Domestic labor market we saw last friday That the u.s added another 500 000 Jobs but that wages are also uh quite Strong as well so businesses are having A lot of trouble uh hiring workers and That's another supply chain disruption We do think that as the pandemic becomes An endemic and people are less worried About returning to to work or don't have To to stay home To take care of their their kids if if The child care places open up again as They had
Or just people You know run out of fiscal stimulus that They'd gotten in their pockets from from Last year and need to go back to work we Do think that the labor supply issue Will solve itself later this year but There's a big question mark and as you Indicated uh the fed is dealing with That uncertainty and it's more likely Than not to start to to really tighten Policy at its march meeting yeah so so The big question is you know what can we Expect from the fed it it seems like the Expectation is that they're going to go Slowly that there'll be a small increase In uh you know a small increase maybe in March and then some more small increases Further months along but it is can we Expect that or could they go a different Route well that is that is what we Expect in our baseline case but the risk Certainly is if if inflation stays high They want to make sure that they get Ahead of any rise in inflation Expectations and they may end up hiking Faster than what we have in our our Baseline even with perhaps a 50 basis Point hike in march again that's not our Call But if the fed is in risk management Mode and wants to make sure that they're Not seen as behind the curve on Inflation Both
From The outside world and politically they May hike faster than we think they they Will given our baseline there's just a Lot of uncertainty we expect that by the End of this year again inflation Pressures will start to fade and that The fed will not have to be as Aggressive As it might be if inflation stays right Now uh but there as i said with the Outlook is is quite uncertain yeah you Know i bet you there's a lot of people That find themselves in this sort of Catch 22 situation like i do where i Want to buy a car but there's so much They're expensive now but if i wait We'll inflation will uh you know the Interest rate go up and now i'll be Paying more to borrow that money i don't Know what to do How will rising inflation affect Americans long term Right it's it's certainly a bit of a Dilemma and that's why the fed wants to Make sure that uh they they they bring It down over time they're not Necessarily looking to to crush the Economy uh as as volcker did in the Early 80s to bring inflation down quite Rapidly But they want to make sure that it Proves relatively transitory and doesn't Last beyond the pandemic forces that
We're seeing now and interestingly what We're seeing in the markets is that the Market largely has credibility in the Feds of The fed's ability to to bring inflation Down so if we look at what the market is Pricing inflation for next year or in 2024 or 2025 they're not far above the The fed's two percent inflation target So the market largely expects the flight In inflation to come down to the fed's Target below three percent uh by next Year But if the fed doesn't act the risk is That the genie's out of the bottle and It sort of Has a self-propelling mechanism all Right up into the stratosphere michael Pond thank you very much Thanks for having me
