US Consumer Inflation Holds Steady, Fed Rate Hike Concerns Ease
Stock markets saw a boost as new data revealed that US consumer inflation remained stable last month at a moderate level. The figures come at a time when concerns about another interest-rate hike by the Federal Reserve were beginning to resurface.
Meanwhile, oil prices experienced a slight dip due to profit-taking after reaching multi-month highs. The slight drop was prompted by worries about Russian supplies following a Ukrainian attack on one of the country’s tankers. However, the market received strong support from output cuts by Moscow and OPEC giant Saudi Arabia.
Investor sentiment has become uncertain concerning the US central bank’s plans, especially as policymakers have warned that more action is required to control prices. Adding to the concerns is the ongoing weakness in China’s economy, which has contributed to a retreat in global markets in recent weeks.
Traders anxiously awaited the release of Thursday’s government data, which showed that the consumer price index (CPI), a crucial gauge of inflation, increased by 3.2 percent compared to the previous year. This rise broke a streak of cooling figures, as inflation had been gradually declining. The CPI plays a significant role in the Federal Reserve’s decision-making on monetary policy.
Although interest-rate hikes have curbed steep price rises in the US, the central bank’s longer-term target is for inflation to be at two percent. In July, the Federal Reserve raised rates but indicated that it could be the last such move after over a year of tightening.
Richard Flax, the chief investment officer at digital wealth manager Moneyfarm, stated that the latest US inflation reading was slightly better than expected. Flax believes that the drivers of inflation in 2022, which were due to supply chain bottlenecks and the conflict in Ukraine, appear to be temporary. Consequently, he anticipates that the probability of a Fed rate increase has now decreased.
On Wednesday, all three main indices on Wall Street ended in the red, primarily due to a downturn in tech firms. However, US stocks experienced an early rise on Thursday, while Europe’s main markets also made solid gains. Eurozone markets were boosted by luxury and travel firms after China lifted its Covid-era ban on outbound group tours to various countries, potentially allowing Chinese tourists to return to destinations worldwide.
Investors are closely monitoring China, hoping for measures to support its struggling economy. Recently, the country experienced deflation for the first time in over two years, and exports plummeted at their fastest pace since the early days of the Covid pandemic. The long-running slowdown in China’s economy has raised concerns about possible spillover effects on global growth.
There is also some nervousness following President Joe Biden’s decision to sign an executive order directing the Treasury to restrict certain US investments in China’s sensitive high-tech sectors, including semiconductors, quantum computing, and artificial intelligence. Beijing criticized the move, stating that it severely disrupts global industrial and supply chains.
As the markets continue to react to economic developments both in the US and globally, investors remain cautious and hope for stability in monetary policies and decisive actions to address economic challenges. The focus will remain on crucial data releases, central bank decisions, and measures taken by governments to navigate a changing economic landscape.
