Pressure building rate hike week
|Pressures are building as we head into a flurry of major western central bank hikes.
The economies of Europe, UK and the USA have been at the core of the past year’s slow down and consumer sentiment and other indicators remain incredibly worrisome. The data abounds.
The Federal Reserve decision will doubtless be the most important. With much anticipation the expectation is for a 25 point hike. The market appears to have under-estimated the prospect of a still aggressive 50 point hike, and is now suddenly having to adjust.
Hence the sharp declines seen on Wall Street yesterday.
Texas just recorded its 9th month in a row of manufacturing recession. It is widely held that the Housing industry is in clear recession.
So there is no doubt the US economy is faltering badly, but is it enough to satisfy the Fed? Probably not. The Fed is anticipating a deeper slow-down and especially across employment, than we have so far seen.
The Fed will not be held back from tightening by the current track of the US economy. It is then up to the inflation data to confirm the challenge has been met, and that it is yet to do.
Markets seem to be confusing lower inflation with acceptable levels of price gains, whereas. Inflation remains at extremely long term damaging levels, and this has always been the intended focus of the Fed’s actions. To remove the long term threat through significant short term pain.
This, I suspect, it will continue to do by taking the Fed Funds rate to 5% at this next meeting with a 50 point hike. There may even be another to 5.50%, should inflation begin to pick up again. With a lower US dollar and bouncing oil prices, this is a very real risk for the Fed.
Markets remain highly vulnerable to a 50 point hike by the Fed this week.
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