![]() Core CPI measured at 5.5%, a sign that inflation pressures in the economy are still strong.Ĭommentators have warned more rate hikes are in order before the Fed gets inflation fully under control, though higher rates will likely be a headwind for stocks. Meanwhile, inflation is still well-above the Fed's target, with prices coming in at 4.9% in the April Consumer Price Index report. Currently, markets have priced in a 72% chance the Fed pauses rate hikes at the June 14-15 meeting, but a 50% chance rates will rise another 25 basis-points in July, per the CME FedWatch tool.Ĭentral bankers have raised interest rates aggressively in the past year to lower inflation, a move that's weighed heavily on stocks and threatens to tip the economy into recession. ![]() Markets have gotten the 'peak Fed' call wrong 3 times so far a fourth unforced error is not out of the question," DataTrek co-founder Nicholas Colas said.Ĭolas predicted that the rally in stocks will continue through the end of June, though the market could face a conundrum in the third quarter as inflation and Fed rate expectations become repriced. "The fly in that optimistic ointment is the threat that a strong economy and declining inflation are mutually incompatible, and the Fed will be forced to keep raising rates in this scenario. But the rally could falter soon, as prices may not be able to ease to the Fed's 2% inflation target without additional rate hikes, the firm said.
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