Will interest rates surely rise to 6%? Former White House economist: A new wave of inflation is coming

A former White House economist said that due to factors such as huge fiscal spending and high energy costs,The US economy may be headed for another wave of high inflation。

“I believe we will see a zigzag inflation cycle"Spurred by high growth and higher energy prices, we're going to see another wave of inflation," Kevin Hassett, chairperson of the Council of Economic Advisers under the Trump administration, said in an interview on Tuesday.

Hassett's remarks came as he made the above remarks.Industrial foreign exchangeInvestors are once again optimistic that disinflation is leading to a soft landing for the US economy, with prices now well below their summer highs. According to the latest consumer price index report, the annual rate of CPI in July was 3.2%, close to the Federal Reserve's 2% price target.

But Hassett cautioned,There are still lingering price pressures in the economy that could cause inflation to rise again.According to the latest estimates from the Atlanta Fed, U.S. GDP will grow by nearly 6% in the third quarter, and Hassett forecasts a 30% to 40% chance that GDP growth will exceed real interest rates.

That level of economic growth has been fueled by inflation, and prices in key industries have risen. Energy prices, which account for about 8 percent of the CPI, have risen, with the average price of gasoline rising to $3.82 a gallon on Tuesday, according to the American Automobile Association.

"It's impossible for inflation to come down under these circumstances, combined with massive fiscal spending, it's absolutely insane," Mr. Hassett said of strong economic growth, adding that given the latest data,Inflation is likely to hover around 5%, up from 3.2% in July.

"I think the Fed will have to raise rates further," Mr. Hassett said.

In Hassett's opinion,Interest rates are "certain" to rise to 6%, a level not seen since December 2000, and most investors may not have priced in that possibilityCME's FedWatch tool shows that as of now, investors see only a 5% chance of interest rates hitting 6% by the end of 2023

As financial conditions continue to tighten,Higher interest rates could spell trouble for the stock market and the economy.In 2022, the Federal Reserve's aggressive interest rate hikes sent the stock market sharply lower, with the S & P 500 down 20%. At the same time, high interest rates also threaten to push the economy into recession, with the New York Fed forecasting a 66% chance of the US economy entering a recession by July 2024.