Weekly Recap: Interest Rate Hikes & Inflation Outlook

Introduction

Welcome back to our weekly news recap. We hope all our Muslim friends have had an enjoyable Hari Raya celebration. Our article today provides a brief overview of events over the past week.

Federal Reserve

Last Wednesday, during an official interview with the Federal Reserve, the central bank raised interest rates by 0.5% to combat worsening inflation. US inflation figures are the worst the country has seen in the last 40 years. The aggressiveness in rate hikes is also the highest in the previous 22 years.
Fed Chairman Jerome Powell has stated that an additional 0.5% rate hike over the next few meetings is on the table but is not expected to apply further hikes past 75 basis points.
The rising costs from grocery stores to fuel pumps have created significant tension among the American people. Mr Powell has said that the Federal Reserve understands the concerns and hardships faced by the American people. Policy implementation is imminent to reduce the pressure on prices.
However, much debate on whether rate hikes would be sufficient plagues investors. The market views the Russia-Ukraine conflict as applying additional pressure on the price of food and energy, which are not expected to end soon. As such, the implications on the US economy are highly uncertain. The additional pressure from the conflict has created and will continue to generate additional upward pressure on inflation and affect economic activity.

Inflation

A Federal Reserve Survey released on Monday (9th May 2022) indicates that consumers are a little more optimistic about inflation figures in April. However, the latter expects spending to be considerably more over the year.
Inflation expectation (1 year ahead) figures have fallen to 6.3%, a 0.3% decrease from March figures. Over three years, expectations gained 0.2% to 3.9%.
The American people are very much uncertain about the rising living costs. New York Fed survey indicates that Americans expect household expenditure to increase by 8%. However, when it comes to fuel prices, consumer expectations have fallen to 5.2% from a previous 4.4% (April).

Gold Prices

Asian Market opens lower with gold prices at near $1,850/ounce. Market sentiment expects that the Federal Reserve will announce a larger rate hike.
Last Friday's report on US Nonfarm Payrolls (NFP) has increased the odds of a rate hike by the Federal Reserve in June. US Bureau of Labour Statistics has indicated that an additional 428k jobs in the labour force compared to expectations of 391k have been added to the market. Higher job creation indicates economic growth and inflation, which may compel the Fed to hike rates by another 50 basis points.