Because in America, rising prices are scarier than Fed hikes

The latest Fed decisions commented by Giorgio Broggi, Moneyfarm Quantitative Analyst

The Fed conference highlighted the weakness of the forward guidance of recent months and perhaps partially undermined its own credibility. Although Powell had basically ruled out a 75 bps rate hike in May, the latest inflation data (8.6% per annum in May), higher than expected, and market expectations forced a reverse, with a three-fold increase. increases to date, albeit accompanied by comments on the exceptional nature of the measure.

It appears the legendary Bond Vigilantes are officially back, ready to aggressively sell bonds and force Central Banks to act decisively to fight inflation. In this context, the increase in prices is starting to scare more than further hikes in rates, with equities initially reacting negatively to the decision, but remained positive (at 20.00 on June 15).

Indeed, while the decision certainly weakens financial conditions even further, and consequently worsens growth expectations, further rate hikes and anchoring inflation expectations suggest that we may be nearing the end of the painful monetary policy transition. we have seen since the beginning of the year. In this sense, investors can at least expect a more normal market regime, in which the correlation between equity and bond returns should begin to decline and the focus should, albeit slowly, shift back to growth, corporate profitability and valuations.

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This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-in-america-aumento-dei-prezzi-fa-piu-paura-dei-rialzi-fed-nei-tassi/ on Sat, 18 Jun 2022 05:33:37 +0000.