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

cnbc.com:

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.

«I think we're also going to have to see an increasingly aggressive Federal Reserve. And I think that clearly after today's inflation data, 50 basis points for March has to be on the table,» he said. Even then, he added, it may not be enough.

«What are we going to have to do through the rest of the year to wrestle inflation to the ground? Because it doesn't seem like it's abating on its own — at least there's no sign of that yet,» said Sheets.

Following the latest inflation data, Goldman Sachs said it was raising its Fed forecast to include «seven consecutive 25bp rate hikes» at each of the remaining Federal Open Market