Learn about the effects on the markets due to high inflation in the US – Sectors – Economy

The record level of the last four decades that the variation in the cost of living of Americans reached, of 9.1 percent, increased the fear of analysts that at the next meeting of the United States central bank (the Federal Reserve) a new historical rise in its market reference rate will be chosen to contain this price escalationwhich would further increase the risk that this economy enters a recession, thereby dragging down other countries around the globe.

(Also read: This is how excessive inflation in the US will hit the Colombian economy)

The data revealed this Wednesday by the Bureau of Labor Statistics (BLS) of said country indicate that the inflation of the sixth month of the year there was pressured by the rise in the prices of gasoline and food.

The rise in energy prices was 7.5 percent in one month and contributed to almost half of the monthly rise, and in the specific case of gasoline, it became more expensive by 11.2 percent in the last month. The rise in food was 1 percent.

(You may also be interested in: ‘Tax on mobile services would affect the poorest’: Asomóvil)

Under that scenario, Investors increased their bets that the Federal Reserve (Fed) central bank could raise its benchmark market rates by 100 basis points at the July 26-27 meeting, which would make it the biggest adjustment of the modern era of this central bank.

“I think they have time, if they want, to change the expectation to 100 (basis points). I don’t think they’ve given us a good reason why they should go slow, or be gradual,” said Michael Feroli, chief US economist at JP Morgan Chase & Co., when asked by the Bloomberg agency.

“If we actually get 100 in July and 75 in September, then I think the growth outlook for later in the year is likely to deteriorate. At this point, I’m inclined to think the main impact could be prompting the Fed to hike further,” he said.

Fed Chairman Jerome Powell said last month, after the central bank raised rates by 75 basis points, that a hike of 50 to 75 points in July was likely. Most of his colleagues have since echoed the message or endorsed a larger movement.

The inflation surprise is largely linked to the rise in gasoline prices. But the economists also pointed out that underlying inflation, that is, items other than energy and food, was higher than expected.
“Inflation is entrenched and it is exactly what worries most investors and central bankers,” explained Jeffrey Roach, of LPL Financial to the AFP agency.

The number “is ugly, there is no doubt”, commented, for his part, Cliff Hodge, of Cornerstone Wealth. “The Fed has no choice and must be even more aggressive, which raises the possibility of a recession in 2023,” he pointed out.

markets react

The June inflation result for the world’s largest economy was slightly higher than expected by market analysts, so the market reaction was swift.

The New York Stock Exchange, for example, ended the day in negative territory. The Dow Jones lost 0.67 percent; the Nasdaq index, which brings together the main technology firms, fell 0.15 percent, and the S&P 500 composite index, of the 500 largest companies in the United States, fell 0.45 percent.

For their part, oil prices stabilized after Tuesday’s sharp drop, in a context of insufficient supply. A barrel of North Sea Brent, for September delivery, rose 0.08 percent to settle at $99.57.

pause on the dollar

In the midst of this turmoil, the dollar took a breather globally and stopped its upward pace.

“The dollar fell globally, against the world’s main currencies,” said Andrés Langebaek, director of Economic Studies at Grupo Bolívar.

In Colombia, this decline was close to 1.5 percent, to 4,558.05 pesos, which is the official rate for this Thursday.

“The markets usually anticipate the news and sell it once the information is confirmed,” said Juan David Ballén, an economist at Casa de Bolsa, who believes that the currency “was overbought and a decline was foreseeable at any time.”

Those consulted consider that yesterday’s fall cannot be considered the breaking point of the currency, since it remains to be seen what will happen to the global economy and oil prices, in the midst of this situation.

“It is difficult to know if this is the breaking point of the dollar because, even if the CPI (of the United States) breaks, the recession and the possible drops in oil must still be dealt with,” said Felipe Campos, director of Grupo Alianza Economic Research.

With information from agencies

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