Months of soaring inflation have rocked global markets as central banks, fearing prices will run too high, are forced to quickly withdraw the ultra-cheap cash policies put in place at the start of the pandemic.
But that has fanned fears that policymakers could go too far and tip leading economies into recession.
Wednesday’s CPI reading was followed by speculation the Fed could hike borrowing costs a full percentage point at its next meeting this month, with some top officials refusing to rule it out just yet.
The bank last month unveiled its first 75 basis point rise for three decades and is one of dozens to hike rates. Canada, New Zealand and South Korea announced hikes Wednesday.
The inflation reading followed Friday’s surprise spike in US jobs creation, which suggested the world’s top economy was withstanding the rate hikes, giving the Fed more room for further increases.
"Stubbornly high inflation increases the risk that the (Fed) continues to hike aggressively and triggers a recession," said Kristina Clifton at Commonwealth Bank of Australia, adding that that belief was picking up momentum on trading floors.
And Federated Hermes senior economist Silvia Dall’Angelo said the reading suggested "inflation will likely remain sticky at elevated levels for the balance of the year, as external and domestic price pressures continue to pass through to consumer prices".
She added that while commodity prices were off their recent peaks, they were still elevated and were at risk of further supply shocks.
With the jobs market still strong and inflation resiliently high, "the Fed will likely resort to hawkish rhetoric and further front-loading of tightening at least until late autumn, as it fights to maintain its credibility", she said.
Wall Street’s three main indexes ended in the red, though they were off their intra-day lows on hopes the Fed will see results by the end of the year begin to cut rates in the new year.
- ‘Glimmers of hope’ -
Asia was mixed, with Tokyo, Sydney, Wellington, Taipei and Jakarta all up but Hong Kong, Shanghai, Singapore, Seoul and Manila down.
While there is a general sense of gloom, eToro global markets strategist Ben Laidler said there were some "glimmers of hope" in the CPI data.
"Recent falls in super-charged oil and agricultural prices, along with a decline in airfares, provide hope we are near the peak of headline inflation," he said in a note, adding that inflation was "the most important number in global markets right now".
"But early signs of easing inflation pressure give some hope of an end to dramatic interest rate hikes and stronger financial markets by Christmas."
The Fed’s drive to tighten monetary policy continues to send the dollar higher, and on Wednesday it finally broke parity with the euro before easing slightly.
Still, an energy crisis in the eurozone and the European Central Bank’s decision to move slower in lifting rates, has led commentators to forecast the single currency could fall to as low as $0.95.
