(Mandel Ngan/AFP/Getty Images)
Inflation rates in Canada, the EU and Australia have popped higher in recent months. The latest pricing data out of the United States, however, has been rosy.
That contrast has led investors to wonder whether the Federal Reserve's current higher-for-longer policy isn't such a bad idea, after all.
A shifting of the plates: Over the past year, investors have been vocal in their desires for the Federal Reserve to cut interest rates, while some central bank officials have been equally vocal about keeping them higher for longer.
The friction between the two groups occasionally heats up, erupting in bouts of market volatility – large upswings after a promising piece of economic data or downswings following a Fed official's attempt to tamp down Wall Street's interest rate expectations.
But that disconnect appears to be fading as inflation rates in the US continue to ease.
Looking abroad: Wall Street has been scared straight by its neighbors to the north and the far west.
Prices in Canada unexpectedly rose in May, according to data released shortly after the Bank of Canada cut interest rates for the first time in four years.
The next day, Inflation in Australia jumped to its highest level in 2024, adding to the fear. In Europe, the eurozone consumer price index moved higher in May, but eased a shade in June — according to data out Tuesday — although core inflation was flat at 2.9%.
The US also had a recent scare as inflation rates ticked higher.
"We believe the loosening of financial conditions in late 2023 may have contributed to the temporary resurgence in price pressures," said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, in a note Monday.
But after a year of the Fed holding interest rates steady at a 23-year high, Inflation rates in the United States are once again declining.
The latest Personal Consumption Expenditures index reading along with the most recent Consumer Price Index report released earlier in June both "suggest that the uptick in prices seen earlier in the year has stalled, and the disinflationary process may have restarted," said Schutte.
High inflation readings around the globe are concerning investors, José Torres, senior economist at Interactive Brokers, told CNN. That worry has made them more accepting of the Fed keeping rates higher, at least for now.
The market outlook for future Fed rate cuts is stabilizing around just one rate cut this year, said Torres. Investors are getting on board with the higher-for-longer outlook.
A warning: The Bank for International Settlements, the umbrella body for central banks around the globe, has even taken notice. They warned central banks in their annual report released Sunday to set a "high bar for policy easing," noting that there's a high risk looser rates could spur price increases.
"A premature easing could reignite inflationary pressures and force a costly policy reversal — all the costlier because credibility would be undermined," the BIS said.
Coming up: Investors are looking toward nonfarm payrolls for June, due out Friday morning. Those numbers could provide them with more context about the state of the economy and clues about what the Federal Reserve may do next.
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