Wall Street dips ahead of inflation figures – Fed summit won’t rule out more rate hikes

Wall Street dips ahead of inflation figures – Fed summit won’t rule out more rate hikes

After a tentative start to the week, the mood was more downbeat on Tuesday. This is how it ended on Wall Street on the second trading day of the week:

  • The Nasdaq index fell 0.7 percent.
  • The Dow Jones index fell 0.2 percent.
  • The S&P 500 index fell 0.5 percent.

In the early hours of the morning, weaker-than-expected numbers came from China, which took an immediate hit when trading opened in Europe a few hours later. All the leading indices ended the day in the red, with the exception of the DAX in Frankfurt, which barely managed to rise. On the Oslo Stock Exchange, the main index fell by 0.89 percent.

The interest rate on US government bonds with maturities of two and ten years is 4.02 percent and 3.51 percent, respectively.

Talks about religion

In addition to lower inflation, the market turned its attention to Washington, D.C., where politicians on both sides of the aisle continued negotiations over the much-discussed debt ceiling.

US Treasury Secretary Janet Yellen has stated several times in recent weeks that a solution must be found to avoid an “economic disaster,” as she called it Monday. President Joe Biden and Republican Kevin McCarthy will meet on Tuesday for new talks.

That the United States is close to defaulting on its debt is nothing new, and this time it is also expected that politicians will agree to raise the ceiling. However, high inflation, a banking crisis, and fear of a recession all deal further blows to the situation in 2023.

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The meeting between Biden, McCarthy and other senior politicians from both sides will take place at 16.00 local time and the parties have warned that the meeting is simply a conversation about the way forward. According to many international media, no final agreement is expected.

Biden and the Democrats have been clear that raising the debt ceiling is non-negotiable and should come without conditions, while Republicans want a deal to raise the debt ceiling to also include cuts in public spending.

However, there is agreement on one thing: Neither side wants a short-term solution that only postpones a new debt situation until the end of September. McCarthy said on Tuesday that a long-term solution is what is needed.

If the United States ends up defaulting, it will be the first time in history. The deadline is June 1.

Does not exclude an increase in interest rates

On Wednesday, the stage was set for inflation numbers from both the US and Norway for April. In the former country, the annual growth rate of five percent is expected last month. Disney also provides the quarterly numbers on Wednesday evening, Norwegian time.

The US inflation rate has fallen steadily since last summer, but it is still well above the 2% target. If prior estimates are correct, then total inflation in April will be at the same level as in March.

As is known, the peak was reached in June last year, when the annual rate was 9.1 percent.

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Core inflation in the United States is expected to be 5.4 percent in April, down only slightly from the annual rate in March.

New York Fed President John Williams said at an event in the city on Tuesday that the central bank would not rule out further rate hikes.

– We did not say that we have finished raising interest rates. If it became expedient to do so, he said, it would be done.

Williams emphasized that the underlying strength of the US economy and the risk of a credit crunch are some of the things that will be measured against each other at the next interest rate meeting in June.

As is known, the US Central Bank raised the key interest rate to a range of 5.0 to 5.25 percent last week, with Central Bank Chairman Jerome Powell stating that the Monetary Policy Committee “will make decisions to a greater extent from one meeting to the next.”

The Fed chairman emphasized several times during the press conference that the central bank wants to bring inflation down to the 2 percent target, and when asked about possible interest rate cuts in the future, he replied that interest rate cuts would be irrelevant as long as inflation remains high.

For now, the market believes that the Fed will keep interest rates on hold at its next meeting on June 14, with a slight possibility of another rate hike. However, little possibility of cuts at the end of August was priced in, even after last week’s strong jobs numbers (Nonfarm Payrolls).

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Dalila Awolowo

Dalila Awolowo

"Explorer. Unapologetic entrepreneur. Alcohol fanatic. Certified writer. Wannabe tv evangelist. Twitter fanatic. Student. Web scholar. Travel buff."

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