- Some FOMC officials suggest more rate hikes to combat inflation
- Republican Party insists on considerable spending cuts
- 7% rise determined in T-bill yields
Recent developments regarding the increase in debt default risks and speculations that the Federal Reserve might proceed with tightening cycle – despite data dependence – have caused a decline in the US stock market. Insiders reveal the Fed officials’ divided opinions on rate hikes following the FOMC minutes.
Experts believe that there is a slim chance of rate cuts. Policymakers are hesitant to take major steps until the debt limit is raised. The uncertainty of inflation’s vitality creates the possibility that the Fed could skip a June rate hike, rather go through with it at the July meeting.
House Speaker McCarthy’s announcement that a deal is not close is also adding to Wall Street’s unease. Despite some common ground, the parties remain far apart on debt talks and have major differences on spending. The market is stressed as a result of the impasse on debt-ceiling talks. This tension makes short-dated Treasuries particularly relevant as the T-bill maturing on June 1st edges north of 7.0%
Wall Street’s concerns are compounded as the Fed’s Waller explained that fighting inflation is a major priority, and he doesn’t agree with halting rate hikes unless there is convincing evidence of inflation coming back down to the target.
The latest monthly inflation data for May reveals that inflation is being stubborn. Although the headline data might move towards the 4% mark, core data will more likely linger in the 5s.
Reserve Bank of New Zealand has reached the goal. A consecutive quarter-point rise has resulted in a cumulative hike of 525bps. Even though the crucial rate is still below inflation, policymakers believe that inflation will decline and slow economic growth will allow them to cut rates by year-end.
As the technical selling for the New Zealand dollar is not yet over it’s crushed in the market today.
UK Core Prices Rise
The UK is still struggling with inflation. Although the headline data is showing improvement due to base effects, the core data is accelerating towards 6.8%. The 50% rise in household energy bills from the previous year was eliminated, but there is no significant progress made in food inflation.
The traders have favored a much higher terminal rate, half a point higher than the earlier prediction, making it easier for BOE’s job.