Moneycontrol Pro Panorama | US Fed in hot spot after inflation spike

Fed chair Jerome Powell, in the previous meeting, had emphasised the need to see a compelling and continuous decline in inflation, before rate hike intensity reduces

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US inflation for June rose by a blistering 9.1 percent to hit a four-decade peak. The year-on-year rise in consumer price index comes on the back of soaring food, energy and housing prices.

Surely, such runaway inflation has triggered worries of another large 75 basis-point (bps) rate hike by the US Federal Reserve (US Fed) in its July meeting. Some analysts are even betting on a 100 bps hike. One basis point is one hundredth of a percentage point. Recall that Fed chair Jerome Powell, in the previous meeting, had emphasised the need to see a compelling and continuous decline in inflation, before rate hike intensity reduces.

Inflation pressures and rate hikes are expected to be a norm in most economies for the near term. The question is whether these factors will slow affordability, hit discretionary consumption and eventually push economies into recession.

Going by a recent blog post of Kristalina Georgieva, managing director, International Monetary Fund, the world outlook is extremely uncertain. “Recent indicators imply a weak second quarter—and we will be projecting a further downgrade to global growth for both 2022 and 2023 in our World Economic Outlook Update later this month,” she states.

Indeed, this spells difficult times ahead for policymakers and central bankers. As equity markets have come off their highs this year, the perpetual question is: have markets hit the bottom? Ajay Bagga’s article analyses nine decades of US markets data, which show that the bottom for the markets is still quite some distance away, price wise, valuations wise and time wise.

Indian equities, like other counterparts, have been volatile, given the global and domestic challenges. Inflation is seeming to cool off, but it could be some time before it helps consumers and companies.

The April-June quarter results of domestic companies have just begun trickling in, with IT companies’ performance portraying profitability strain due to rising costs. Shyam Sekhar’s piece gives investors suggestions on how to make investing work in troubled times.
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Technical Picks: PI Industries, L&T, L&T Infotech, USD-INR, Shriram Transport and Copper (These are published every trading day before markets open and can be read on the app)

Vatsala Kamat
Moneycontrol Pro