Following recent strong US employment data that showed the labor market continues to be particularly tight, keeping the risk of high inflation longer than expected, the inflation that caught the attention of the markets last week is also surprised negatively as it has picked up.
Thus, it further supported the view that the US Federal Reserve (Fed) should maintain a tight monetary policy for a longer period in order to achieve a timely return of inflation to the medium-term target, while the main consumer price index exceeded slowing down the past three months, registering a monthly increase of 0.5% in January, the highest rate in seven months.
Reflecting rising prices for services as well as prices for goods for the first time since November, core inflation was also stronger than expected, posting its biggest monthly increase in four months at 0.4%.
At the same time, most economic activity data for January comes out stronger than market estimates (e.g. retail sales, industrial production), suggesting an uptick in economic activity early in the first quarter that could eventually challenge initial estimates for a recession, albeit easy, until the end of the first semester.
Following these strong numbers, several Fed officials continue to take a particularly “aggressive” tone in their speeches, reinforcing the view that the Bank is leaving open the possibility of further increases in the coming months, that is, a return to 50 basis points. rate, with the final rate higher than its last forecast in December.
Under the influence of these statements and strong data on the US economy, the futures market in recent days has moved to a new revision of its estimates of interest rates in the US.
In particular, the final rate is currently projected at 5.30% in July compared to 5.15% last week and 4.80% in early February, ie. an overall further increase of about 70 basis points, while the estimate for a year-end rate cut has now been reduced to less than 25 m.v. Given the above conditions, US government bond markets came under significant new pressure.
* Department of Financial Analysis and Research of International Capital Markets of Eurobank.
Source: Kathimerini
Lori Barajas is an accomplished journalist, known for her insightful and thought-provoking writing on economy. She currently works as a writer at 247 news reel. With a passion for understanding the economy, Lori’s writing delves deep into the financial issues that matter most, providing readers with a unique perspective on current events.