Daily Alert – Wednesday 10th May 2023: All eyes on US inflation

Mark NugentDaily Alert, May 2023

Daily Alert – Wednesday 10th May 2023: All eyes on US inflation

Good morning.

It’s really very quiet in the run up to US inflation data, due at lunchtime, UK-time. One on side we have the Fed adamantly saying they will not cut rates this year. On the other we have the markets pricing in two- or three-quarter point cuts before the year-end.

Inflation is only one determinant of course. There are other issues, like possible recession, further banking crises, the debt ceiling drama, and the current yield curve inversion (where shorter dated bonds are yielding more than longer dated bonds, a situation that is unsustainable for retail banks).

Of course, the Fed has a dual mandate: price stability and maximum employment. The first issue, price stability, is clearly not under control. The second, maximum employment, although tougher to measure, is not causing any concern. All-in-all, the idea of the Fed considering rate cuts looks very far off to me.

I’ll be back tomorrow.

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