All Eyes On The Federal Reserve’s Inflation Busting Move

Published on
  • Markets brace for another large rate hike from the Federal Reserve today
  • Wall Street stocks fall as investors assess indications of weaker consumer spending patterns
  • Ford stock tumbles amid soaring costs and slowing global demand
  • Markets price in a 0.75% rate hike from the Bank of England tomorrow, with more to come
  • Russia’s MOEX plummeted amid chaos in the Kremlin and war escalation fears

The Federal Reserve’s Latest Move

All eyes will be on the Federal Reserve’s latest inflation busting move today, as the price spiral continues to cause financial pain for consumers and companies.

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The US central bank is expected to go big and raise rates by 0.75% for the third time in a row, with some expectations that policymakers may decide to supersize the hike to 1%. There are worries that inflation is becoming dangerously entrenched in the economy, threatening financial stability.

High hopes that supply chain snarl ups, which have been afflicting multinationals, would have eased by now have been dashed by Ford’s update. The motor manufacturer has warned that the bill to cope with chip shortages and higher supplier costs has hit $1 billion.

This has highlighted not only the trouble inflation is causing to corporate America, but has led to worries that it’s going to be even harder to pull the price spiral down given that supply chain problems a still such persistent problem.

Expectations that a further ratcheting up in rates will see shoppers tightening the purse strings has now tripped up the US rally in retail stocks, with Amazon and discount retailer TJX among the stocks falling back.

US shoppers have been super-resilient so far, but clouds over retail are darkening, especially after personal style company Stitch Fix warning of a much more challenging economic backdrop, in its after-hours update. 

ECB's Rate Hike

The Federal Reserve’s decision may be more imminent but investors are also now factoring in big rate rises from the European Central Bank, after president Christine Lagarde’s hawkish comments, warning that even though action has already been front loaded, more hikes will be needed.

Bond markets are pricing in a 0.75% jump in the base rate to be voted in by policymakers at the Bank of England on Thursday, with further rises to come by the end of the year.

The forecast now is for the monetary screws to be tightened much more than investors expected just a few months ago, with inflation staying stubbornly close to double digits, which is set to pile more pressure on the consumer discretionary sector.

Amid a fresh storm of uncertainty about the direction of the war in Ukraine, with expectations of an announcement of a mass mobilisation of conscripts, Russia’s MOEX tumbled yesterday, with energy stocks pushing down the index at the fasted pace since February.

Investors in Russian stocks are clearly rattled about a possible escalation of the conflict and knock-on effect of the loss of oil revenues, as countries meeting at the UN in New York condemned the latest twists in Russia’s operations.

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown