Investors next week will be closely watching for the latest reading on U.S. inflation, which has been running hot against the backdrop of a volatile stock...
Investors next week will be closely watching for the latest reading on U.S. inflation, which has been running hot against the backdrop of a volatile stock market in 2022.
Paul Volcker, who became Fed Chair in August 1979, helped tame soaring inflation by aggressively raising the Fed’s benchmark interest rates in the 1980s, DataTrek Research co-founder Nicholas Colas said in a Feb. 3 note. “Fed Funds ran far higher than CPI inflation for his entire tenure.” Inflation loitering hotter for longer may “engender a much more aggressive Federal Reserve response and as a consequence could undermine the lofty valuations for the market at large,” said Luschini, “particularly those long-duration growth sectors like technology that have already suffered over the past month.”
Meanwhile, rising energy prices are part of the inflation framework that “we are watching along with everyone else,” said Whitney Sweeney, investment strategist at Schroders, in a phone interview. Elevated oil prices are worrying as Americans wind up feeling the pinch at the gas pump, leaving people with less disposable income to spend in the economy, said Sweeney.
Volcker also had some help taming inflation from the Bureau of Labor Statistics changing its calculation of shelter inflation to remove the effect of interest rates, according to DataTrek. Shelter costs, like rent, represent a significant portion of CPI and it’s an area of inflation that tends to be “stickier,” which is why investors are watching it closely as they try to gauge how aggressive the Fed may need to be in fighting the rise in cost of living, said Sweeney.
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