| Ronen Menachem, Chief Economist of Mizrahi Tefahot
The Federal Reserve is pouring all its energy on curbing US inflation, which is everything in its eyes, and therefore signals to markets that sharp rises are ahead of it, which could amount to 2% in just 3 months. Recovers well and excels in both business and employment.
Even before the data for the first quarter of 2022, this argument began to raise question marks, as entities such as the World Bank and the International Monetary Fund have significantly reduced their estimates of 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.
However, the figure that is preying on the cards is GDP itself, which, contrary to estimates that it will increase by 1.1%, has surprisingly shrunk by 1.4% and could undermine the Fed’s (and the markets’) confidence in the strength of the economy.
It is also a large decline compared to the previous quarter, when US GDP grew by 6.9%. The effect of the additive could well be seen in the fact that the plant at 17%, while it contracted at 5.9%.
Even compared to the corresponding quarter last year, the results are weak: imports recorded an increase of about 12%, three times the growth rate of exports.
The main cause of concern can be found in the driving force of the US economy and the rest of the world – households. It grew by 2.7%, less than economists’ estimates for a 3.5% increase. Priced today.
I will mention in this context that it is not for nothing that the Fed repeatedly emphasizes that its policy is data-dependent, and that if it turns out that the economic environment is not as strong as it thought, it will not hesitate to take time-outs, or at least settle for more measured interest rates.
Today’s data may be the first link in signals in this direction. As things stand, it is possible that the sharp rises in government bond yields will also moderate and go away.
– The author is the chief economist of Mizrahi Tefahot Bank. This review is not a substitute for investment marketing that takes into account the data and special needs of each person.