Forex News May 11, 2022

 

Inflation

The big question for the day ahead of the US CPI report is whether we’ve reached “peak inflation.” In essence, it’s easy to argue that we’ll see lower inflation readings in the coming months, and that may be all that markets care about – at least for the time being. There are no easy solutions to the world’s problems when it comes to resolving the issues that have caused inflation pressures to skyrocket in the last year. And those problems aren’t going away anytime soon.

  • While it is reasonable to expect less hot inflation numbers in the future, this does not imply that inflationary pressures will be significantly reduced.
  • While it is easy to raise interest rates when inflation is high and argue that it will eventually fall back to 2%, it is not so easy when that someday keeps getting pushed back. At some point, policymakers may need to acknowledge that inflationary pressures will become more persistent and sticky, and that if they are to combat this further, tighter policy may be required for a longer period of time. In the case of the Fed, this could imply guiding the Fed funds rate to a higher terminal rate than anticipated. 

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