US: Higher inflation to support the case for interest rate hikes – ING

“Headline inflation is being held down temporarily by energy price falls, but decent growth and a robust labour market suggest price pressures will strengthen. This will help build the case for a summer Federal Reserve rate hike,” argues ING’s chief international economist, James Knightley.  

Key quotes

“In terms of the outlook, we suspect the US is at, or at least very close to, the bottom for headline inflation. For one thing, we suspect energy will start to make more of an upside contribution in March and April given the price of oil has risen $12/barrel since its mid-December trough.”

“We believe that higher inflation in combination with strong economic fundamentals will convince the Federal Reserve to raise interest rates further. However this view critically depends on positive news from the US-China trade talks and a general de-escalation of the protectionist threat. If that can be achieved then we think we will see a June rate hike. If not then the risks to growth will be heightened and it may be that the Fed funds rate has already peaked.”