“Can the Fed stick to its promise to keep interest rates at virtually zero through late 2014? A growing chorus of voices warns not to bet on that outcome, which has major implications for the bond market and for U.S. spending policy during an election year.
The Consumer Price Index was up 0.4 percent. Annualized, that’s inflation of 2.9 percent, well above the Fed’s target of 2 percent. Core inflation, which leaves aside volatile food and energy costs, was up 0.1 percent in February.
Even so, core inflation exceeds the annualized target, hitting 2.2 percent.
“Inflation will be higher than they think,” Mark Zandi, Moody’s Analytics chief economist, told CNBC, referring to the Fed’s rate-setting committee, the FOMC.
“They said they’ll start to raise rates late 2014, but they’ll be unable to stick to that commitment. They’ll be under pressure to start tightening sooner.”
Federal Reserve Bank of Richmond President Jeffrey Lacker agrees. He wrote on the bank’s web site that the Fed would like have to raise interest rates in 2013 to hold off inflation. “My current assessment is that an increase in interest rates is likely to be necessary some time in 2013,” Lacker wrote….”
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