The Fed is pouring all its energy on curbing inflation, which is a sight for all and therefore signals to markets that sharp interest rate hikes are ahead of it, which could amount to 2 percent in just 3 months. And both occupational.
Even before the GDP data for the first quarter of the year, this argument began to raise question marks, as entities such as the World Bank and the International Monetary Fund have significantly reduced their estimates for global GDP growth, with an emphasis on continental Europe and emerging markets, but also in the US.
Of course, even the sharp appreciation of the dollar has already hinted at difficulties that will develop in the export sector, and of course, the Russia-Ukraine war is getting longer and also poses economic and budgetary challenges.
The figure published today does show that inflation is rising and must be addressed.
Evidently, the price index of GDP recorded an annual increase of 8% in the first quarter, both higher than the rate of increase in the last quarter last year (+ 7.1%) and than the rate expected (+ 7.2%).
However, this index without food and energy, which is more inductive, rose by only 5.2%; Although it was also higher than estimated, it showed that a significant part of inflation today is related to supply factors – food, energy and other vegetables.
But the figure that is devouring the cards is GDP itself, which, contrary to estimates that it will grow by 1.1%, has surprisingly shrunk by 1.4% and could undermine the confidence of the Fed (and markets) in the strength of the economy.
It is also a large decline compared to the previous quarter, when GDP grew by 6.9%. The effect of the dollar appreciation could well be seen in the fact that imports grew by 17%, while exports contracted by 5.9%. Imports recorded an increase of about 12%, three times the rate of increase in exports.
The main cause of concern can be found in the driving force of the US economy and the rest of the world – households. Private consumption increased by 2.7%, less than economists’ estimates for a 3.5% increase. And the capital market is indeed priced today.
I will mention, in this context, that it is not for nothing that the Fed repeatedly emphasizes that its policy depends on data and that if it turns out that the economic environment is not as strong as it thought, it will not hesitate to take timeouts, or at least settle for more measured interest rates. In this direction.
As things stand, it is possible that the sharp rises in yields will also moderate.