US Federal Reserve's inflation index reached 40-year high

WASHINGTON:  In December 2021, a key inflation indicator regularly monitored by the US Federal Reserve climbed at its quickest rate in nearly 40 years, reinforcing market predictions that the central bank will begin hiking interest rates in March to combat inflation.

The Fed's preferred inflation indicator, the personal consumption expenditure (PCE) price index, rose 5.8 percent year over year in December, the quickest annual rate since mid-1982, according to the Commerce Department. The Department of Commerce's core PCE price index, which excludes volatile food and energy costs, climbed 4.9 percent from a year ago, the quickest annual rate since September 1983, well beyond the Fed's 2 percent inflation objective.

The latest inflation statistics comes as the Federal Reserve said on Wednesday that it is prepared to hike interest rates as soon as March to combat rising inflation as it departs the ultra-loose monetary policy implemented at the outset of the Covid-19 outbreak.

For the next two years, the central bank has promised to hold the federal funds rate near zero, which is a record low. However, due to rising inflationary pressures, many Fed members have stated in recent weeks that they would be fine with a rate hike in March.

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