Fed: Credibility tested as inflation rises – Commerzbank

Commerzbank’s Antje Praefcke notes that rising US inflation and elevated energy prices complicate incoming Fed Chair Kevin Warsh’s efforts to secure early rate cuts. She highlights that persistent price pressures and a closed Strait of Hormuz could force a more hawkish FOMC stance, limiting scope for easing. This environment leaves the Dollar supported as markets reassess Fed policy risks.

Warsh faces hawkish inflation dilemma

"For the moment, central banks around the world may still be looking through the energy price shock as a temporary effect."

"But especially if the inflation rate in the US continues to rise – a clear risk scenario if the Strait of Hormuz remains closed for longer and energy prices stay elevated or increase further – or if inflation expectations pick up, this is likely to be a difficult undertaking for Warsh, not least because some FOMC members have already expressed concern about inflationary pressures."

"Yet the longer the inflation rate remains high, the harder it will be for him to push through rate cuts."

"Everything ultimately hinges on the Strait of Hormuz."

"In light of yesterday’s inflation data, however, I am increasingly doubtful that Warsh will be able to prevail, at least in the short term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)