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Powell will have to push rates even higher for the Fed to get inflation to 2%

In January, U.S. retail sales jumped 3%, employers added 517,000 jobs, and the consumer price index rose 6.4% from a year earlier.

The federal budget deficit — thanks to increased entitlements spending, the Chips and R&D Act, the Inflation Reduction Act, bailouts for union pension systems and war in Ukraine — is estimated by the Congressional Budget Office at $1.41 trillion for fiscal 2023. 

That’s a huge increase from fiscal 2019, the last pre-pandemic year, when the budget gap was $984 billion.

Overall, the deficit has increased to 5.4% of GDP from 4.6% from before COVID

The Fed so far has raised the effective federal funds rate to little more than half of last June’s peak inflation, 

and the rates on both 1-and 10-year Treasurys are currently about 5% and 4%, respectively. 

Measured against the most recent CPI reading, real interest rates are negative.

Peter Morici MarketWatch 7 March 2023


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