Indices Continue Decline on Inflation Data
STOCK INDEX FUTURES
Stock index futures continued to decline following last Friday’s data on inflation. U.S. consumer prices increased 8.6% year-over-year in May, which was the fastest since 1981.
This report forced many analysts to anticipate more aggressive interest rate increases from the Federal Reserve.
The central bank’s latest policy meeting will be held on Tuesday and Wednesday, with the Fed expected to announce at least another 50 basis point increase in its benchmark interest rate on Wednesday afternoon.
Wednesday’s 1:00 p.m. central time policy announcement will be followed by a press conference with Fed Chair Jerome Powell at 1:30. The Fed will also release its latest summary of economic projections on Wednesday, offering officials’ forecasts for GDP growth, inflation and future rate increases.
The U.S. dollar index is near the highest level since late 2002.
The British pound fell to near a two-year low on news that the U.K. economy shrank 0.3% month-over-month in April of 2022, following a 0.1% contraction in March and missing market expectations of a 0.1% expansion.
That may persuade the Bank of England to move cautiously in fighting inflation. The BoE is expected to deliver a quarter-point rate hike on Thursday.
The possibility of an even wider interest rate differential between the U.S. and Japan pushed the yen down to its weakest since 1998.
INTEREST RATE MARKET FUTURES
Financial futures markets are predicting there is a 63.0% probability that the Federal Open Market Committee will hike its fed funds rate by 50 basis points and an 37.0% probability that the rate will increase by 75 basis points at the June 15 policy meeting.
It is anticipated that the Fed will raise interest rates by 50 basis points at the July and September meetings.
Currently the Fed’s focus is clearly on inflation, while a slowing economy will be problem for the Fed to deal with later. Just on Friday the June consumer sentiment index came in at the lowest level on record.
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