With rates headed toward four per cent, the risk of a recession has significantly increased. The OECD thinks the US will squeeze out 2.5 per cent and 1.2 per cent of growth this year and next.īut, those conclusions were drawn before the Fed’s 75 basis point rate rise bazooka last week. However, strong demand for workers will partially shield incomes. The country’s jobs market is extremely tight, but wages are trailing inflation. That market adjustment is making Americans feel worse off, signalled by the Michigan University consumer confidence index dropping to its lowest level ever. Other asset prices have cooled in response to the Fed’s tightening.
Wall Street’s S&P 500 and Nasdaq indexes have each tumbled into a bear market. While this will weaken the pound and the euro, it will help the US by drawing in foreign investment.īut, the Fed’s hikes will weigh on American companies that have a strong international presence, such as Apple and Microsoft, by making it more expensive to buy their products abroad due to dollar appreciation. Yields on US government debt have surged as traders price in the higher rate environment. Last week, chair Jerome Powell and co signed off the first 75 basis point rise since 1994 after it was spooked by the latest inflation figures – a four decade high of 8.6 per cent – smashing Wall Street’s expectations.Ĭore inflation also surprised to the upside, indicating price pressures are spreading across markets and are stickier than first thought. The US Federal Reserve is taking the lead among the central banking community in dialling up the fight against inflation.
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