U.S. inflation data is like a ‘punch in the stomach’ for the Fed, says Citi economist

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• The latest U.S. January inflation data came in like a “punch in the stomach” for the Federal Reserve, said the global chief economist of Citi Research Nathan Sheets, adding that means the next rate hike could be as aggressive as 50 basis points.
  
• The U.S. consumer price index for January surged to 7.5% year-over-year, according to the Labor Department. Both headline and core CPI rose 0.6%, compared to estimates for a 0.4% increase by both measures.
  
• “These inflation data today came like a punch in the stomach for Jay Powell and his colleagues,” Nathan Sheets told CNBC’s “Squawk Box Asia” on Friday.
  

The latest U.S. January inflation data came in like a “punch in the stomach” for the Federal Reserve, which raises the possibility for an aggressive 50 basis points rate hike in March, the global chief economist of Citi Research said.

The consumer price index for January, which measures the costs of dozens of everyday consumer goods, rose 7.5% year-on-year, the Labor Department reported Thursday.

“This inflation data today came like a punch in the stomach for Jay Powell and his colleagues,” Nathan Sheets told CNBC’s “Squawk Box Asia” on Friday, referring to the Fed chairman.

“Their narrative is that as the year progresses, we should see inflation start to abate and to come on down. And there was not even a hint of that in the January data,” he added.

The monthly CPI rates also came in stronger than expected. Both headline and core CPI rose 0.6%, compared to estimates for a 0.4% increase by both measures.

Even with the challenges posed by the highly contagious omicron variant, inflation still remains high, and more progress needs to be made to bring inflation down to 3% for this year, Sheets said.

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