LONDON (AFP): Stock markets retreated and the dollar traded mixed Wednesday before the release of key US inflation data.
Following last week’s Fed hike to interest rates and a forecast-beating jobs report for the world’s biggest economy, focus is lasered on the US consumer price index reading later in the day. The outcome should play a key decision-making role in the US central bank’s June policy meeting, according to market watchers.
“Investors are eager to see proof that inflation is easing as that is another reason for the Federal Reserve to stop raising interest rates,” said Russ Mould, investment director at AJ Bell.
“The sharp rise in the cost of borrowing has had a brutal impact on consumers and businesses and any relief on this front would be welcomed by the market — even if it is just a rates pause rather than reduction in the near-term.”
The Fed hinted at a possible pause in its long-running tightening cycle but observers warned that any sign inflation is creeping up would put pressure on officials to turn the screws further. And while the US economy shows resilience, several indicators suggest it is easing, feeding concerns that it could be heading for a recession.
Adding to the headache for the Fed is the need to avoid causing more ructions in the finance sector after the recent upheaval that has seen three US regional lenders go under, one taken over by JPMorgan, and UBS buying Credit Suisse in the space of two months.
The lenders’ troubles have been partly blamed on the rapid rate hikes since last year, meaning monetary policymakers have been forced to rethink their approach to bringing down inflation.
Dealers are also keeping tabs on developments in the talks to raise the US debt ceiling, with congressional leaders unable to reach an agreement on how to lift borrowing before a deadline to avoid a catastrophic default.
Stock markets drift lower before US inflation data — The Frontier Post
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