| John Mayer, Chief Investment Officer of GlobalX |
The market is already pricing 10 increases in the US, and is expected to point this week to a continued rise in inflation.
A cluster of statements by Federal Reserve members over the past week have made it clear to the market that the Federal Reserve understands that it is “lagging behind” when it comes to the rate of interest rate hikes and the reduction of the balance sheet. Therefore, we are witnessing a pricing of more interest rate hikes.
For now, the market is pricing 10 interest rate hikes at a rate of 3%, and there is a chance that the interest rate will rise even higher. This sentiment has led to an increase in the short-term bond yield curve, flattening the medium- and long-term yield curve. Long-term yield spreads are a better indicator of a recession than longer-term interest rates, as they are less affected by short-term inflation and inflation expectations. And that part of the yield curve — that is, the short-term — is still positively sloping.
The consumer price index for March will be published in the US on Tuesday, and is expected to indicate a further increase in inflation from an annual level of 7.9% to an annual level of 8.5%. On Wednesday it will be published, which is also expected to indicate an increase in inflation.
According to U.S. credit data, lower-income consumers continue to spend and consume, and there is a significant increase over last year. However, credit debt is also rising. It will be important to analyze the details of the report and see if there is a decrease in certain items of consumption, which may indicate a decrease in the consumer’s purchasing power.
The author is a senior investment manager at the GlobalX mutual fund company. The above should not be construed as investment advice, recommendation or opinion regarding any financial products.