There have been times when a 4.3% rate of inflation in the US would have been welcome. The most recent was 1990, when the overnight interest rate was 7.3%. The overnight rate is now 4.25%, so the 4.3% consumer price inflation reported for November makes life tough for the Federal Reserve Board—and for investors.

Back in August, it looked like a slowing US economy was pulling down inflation. The Consumer Price Index (CPI) was running at a 2% rate. By October it was 3.5%. The November 4.3% was 0.2 percentage points higher than consensus expectations, according to Reuters. Even the ‘core’ inflation rate, which excludes food and energy prices, climbed to 2.3%.

The current rate is too high for comfort. Ben Bernanke, the Fed chairman, is unlikely to be reassured by the fact that his absolutely favourite measure, core inflation on personal consumption expenditures, was only 1.9% in October. When the November figure is released later this month, it is almost certain to be above the top of his 1-2% target range.

The crucial point is that underlying inflationary pressures are strong. That means that whatever the chosen measure, the rate is likely to rise. The Fed has taken note. As its Tuesday statement suggested, it may have to hold back on interest rate reductions until inflation starts to fall back. The central bank can live with somewhat softer growth; only the threat of outright recession need provoke more rate cuts.

At present, recession is a risk, not a reality. US growth was an annualised 4.9% in the third quarter. There can be little doubt that growth has slowed in the fourth quarter, but a very big 1.2% rise in November’s retail sales suggests the US consumer is still kicking. And while Americans spend, the risk that inflation spikes grows higher.

If Ben is not for cutting, what will it mean? Equity markets, which have been counting on cheapening money, could be hit hard. The dollar, on the other hand, could rebound, at least temporarily. Part of the reason for its recent fall has been the expectation of lower rates. That might be about to change.