At the start of this year, financial markets were pricing in as many as six US interest rate cuts. Now it’s only two. What happened?
Two related things have happened. US economic growth has been stronger than expected and US inflation has been more stubborn than expected.
JPMorgan CEO Jamie Dimon’s annual letter to shareholders says the threat of stagflation is very real.Credit: Bloomberg
Last Friday’s jobs data was typical of the way this year has been unfolding. The US created 303,000 jobs in March, far above the 200,000 economists had forecast. The unemployment rate edged down from 3.9 per cent to 3.8 per cent, again a stronger outcome than anticipated.
That has been the pattern so far this year, with the labour market and economy consistently outperforming expectations.
The flip side of the stronger-than-forecast growth has been an inflation rate that has been edging up, despite the Federal Reserve Board maintaining its targeted range for its policy rate at 5 to 5.25 per cent – the highest level in more than 20 years. That range has been unchanged since last July.
The US headline CPI in January was 3.1 per cent. In February it was 3.2 per cent. The March number will be known on Wednesday, but is forecast to be 3.5 per cent. While the inflation rate is way off the high of 9.1 per cent it hit in the middle of 2022, the recent trend is in the wrong direction.
The “last mile” of the fight against inflation, in the US and elsewhere, is proving more stubborn and bumpy than the Fed, or investors, had expected at the start of this year.
In the circumstances, it isn’t surprising that the optimism about rate cuts that was priced into markets has faded, even though the Fed chair, Jerome Powell, said only last week that the stronger-than-expected economy hadn’t changed the Fed’s expectation that a decline in inflation would allow for rate cuts this year.
The chief of America’s biggest bank is worried. That’s bad news for all of us
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09.04.2024
At the start of this year, financial markets were pricing in as many as six US interest rate cuts. Now it’s only two. What happened?
Two related things have happened. US economic growth has been stronger than expected and US inflation has been more stubborn than expected.
JPMorgan CEO Jamie Dimon’s annual letter to shareholders says the threat of stagflation is very real.Credit: Bloomberg
Last Friday’s jobs data was typical of the way this year has been........
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