**********Former US Treasury Secretary Summers said in an interview with Bloomberg that the United States is currently at the most sensitive moment of inflation escalation, and there is a risk of price pressure erupting again. He believes that the next step for the Federal Reserve is likely to be a rate hike, rather than the previously expected rate cut by the market. This is not a matter of probability, but a very realistic possibility. For any form of cost shock, any rhetoric that undermines inflation confidence, and any fiscal irresponsibility measures, this is a particularly dangerous moment. "Summers' remarks once again raised concerns in the market about the prospects of the US economy. As early as 2021, he warned that excessive stimulus from US fiscal and monetary policies could trigger the most severe inflation in a generation. And the fact proves that his concerns are not unfounded - the United States experienced the most severe inflation surge in 40 years in 2022.

The tight job market and rising wages exacerbate inflation risks

Summers pointed out that the recent strong performance of the US job market has laid the foundation for a rebound in inflation. Although the non farm employment data for January added 143000 jobs, lower than market expectations, the data for the first two months was significantly revised upwards, with a total increase of 100000 jobs. In addition, the salary growth rate far exceeded expectations. The average hourly wage in January increased by 0.5% month on month, exceeding the predictions of all economists. The weather adjustment data from the San Francisco Federal Reserve shows that more than 200000 new jobs may be added in January. The growth rate of related employment far exceeds the conventional absorption capacity of the US economy, especially in the current context of tightening immigration policies. Therefore, it is not surprising that wage growth has increased significantly, "said Summers. This trend has raised concerns in the market about the resurgence of inflation. Independent surveys by the University of Michigan and the Federal Reserve of New York have both shown that the expectations of future inflation among the American public have increased, indicating that inflation confidence may be affected.

Trade policies exacerbate inflationary pressures

In addition to job market factors, recent US trade policies may also push up inflation levels. The recently announced tariff policies by the Trump administration, as well as the crackdown on illegal immigration, may exacerbate the rise in supply chain costs, thereby pushing up commodity prices. Many economists warn that deporting undocumented immigrants and tightening border controls may lead to labor shortages and further increase wage pressures. The increase in tariffs may trigger a one-time price hike, and may even lead to an increase in long-term inflation levels.

Federal Reserve attitude: Powell maintains cautious stance

Federal Reserve Chairman Powell reiterated at Tuesday's Senate hearing that he believes the Fed does not need to rush to cut interest rates. He pointed out that after accumulating a 1 percentage point interest rate cut in the last few months of 2024, policymakers will remain patient and observe the economic trend. Powell's statement echoes Summers' warning. The market had previously widely expected the Federal Reserve to cut interest rates in September 2024 and by approximately 35 basis points throughout the year. But as inflation expectations rise, the possibility of interest rate hikes is being re examined by the market. It is worth noting that the Federal Reserve admitted in 2022 that the policy adjustment in 2021 was too slow. Powell said at the time, 'In hindsight, we should have raised interest rates earlier.' This time, whether the Federal Reserve will underestimate inflation risks again has become the focus of market attention.

Edit viewpoint

Currently, the US economy is at a critical turning point. On the one hand, rising inflation expectations, accelerated wage growth, and changes in trade policies have raised concerns in the market that the Federal Reserve may be forced to adopt more aggressive tightening policies; On the other hand, the Federal Reserve remains cautious and is not in a hurry to adjust its policies. If inflation data remains high in the coming months, market expectations for interest rate cuts may further weaken, and the possibility of interest rate hikes may even need to be considered. Investors need to closely monitor the job market, inflation data, and the latest statements from the Federal Reserve to determine the direction of future monetary policy.