The Fed takes the red pill

THE US Federal Reserve (Fed) has finally acknowledged the reality of the inflation problem. The uncertainty raised by the Russia-Ukraine war did not stop it from raising rates at its March policy meeting, though it capped this first hike to just 25 basis points (bps).

Connecting the "dots" points to an expected total of 7 rate hikes this year, and Fed chair Jerome Powell indicated that quantitative tightening (shrinking the Fed's bloated balance sheet) will start sooner than expected, likely in May.

This might all sound rather hawkish. Inflation had become a major social and political problem, and in this month's press conference, Powell tried to channel former Fed chair Paul Volcker, signalling the Fed is aggressive and determined to bring inflation under control.