U.S. equities closed more than 3.0% down on Monday after a hotter-than-expected monthly reading for CPI last week.
How much longer before inflation peaks?
Still, NatWest Markets’ Michelle Girard warns it could be another couple of months before inflation hits a peak. Speaking with CNBC’s Dominic Chu this morning on “Worldwide Exchange”, she said:
We had thought the peak might be in but the surprise in food and energy that continued into June means we are probably at least a couple of months away from that headline number showing a peak.
Girard is convinced the market is pricing in close to another 2.50% increase in interest rates by the end of the year. The S&P 500 index is now officially in the bear market territory.
What to expect from the Fed this week?
Despite inflation running hotter-than-expected, Girard doesn’t expect the U.S. Federal Reserve to announce a 75 basis points increase in interest rates on Wednesday. Explaining why, she noted:
Chairman Powell has put the Fed in a box by effectively taking 75 bps off the table for the summer. So, it’s not impossible but difficult for the Fed to make a larger move. Their hands are a bit tied by that signalling.
The NatWest expert, however, says the central bank, this week, will likely put a broader increase back on the table for the July meeting. According to famed economist Mohamed El-Erian, Jay Powell is “losing total control of the inflation narrative”.
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