Outlook for US stocks, bonds darkens after grim inflation report
NEW YORK : An already-murky outlook for US stocks and bonds is growing darker, as sizzling inflation ratchets up expectations for how aggressively the Federal Reserve (Fed) will need to raise interest rates. For weeks, investors had debated whether the full extent of Fed hawkishness had been priced into markets, after the central bank already raised rates by 225 basis points this year, with many penciling in another 75 basis point rate increase at its meeting next week. Tuesday’s (Sept 13) hotter-than-expected inflation report – which slammed stock and bond prices – is bolstering the case for those who argue the central bank will need to be far more hawkish than anticipated in the weeks ahead. That’s forcing investors to gird themselves for a potentially bigger dose of Fed tightening that has rocked asset prices all year. The closely watched consumer price index report showed US prices unexpectedly rose in August, at an annual pace of 8.3%, not far from the four-decade peak reached in June. “The Fed was already going on a tightening path in the next several months and now they have got to actually increase that given this report,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management. “It’s pretty negative across the board for markets.” Fed funds futures are now pricing in a roughly 36% chance that the Fed next week raises its benchmark rate by a full percentage point, a view supported by analysts at Nomura, who on Tuesday forecast a 100 basis point increase in September.
Outlook for US stocks, bonds darkens after grim inflation report
NEW YORK : An already-murky outlook for US stocks and bonds is growing darker, as sizzling inflation ratchets up expectations for how aggressively the Federal Reserve (Fed) will need to raise interest rates. For weeks, investors had debated whether the full extent of Fed hawkishness had been priced into markets, after the central bank already raised rates by 225 basis points this year, with many penciling in another 75 basis point rate increase at its meeting next week. Tuesday’s (Sept 13) hotter-than-expected inflation report – which slammed stock and bond prices – is bolstering the case for those who argue the central bank will need to be far more hawkish than anticipated in the weeks ahead. That’s forcing investors to gird themselves for a potentially bigger dose of Fed tightening that has rocked asset prices all year. The closely watched consumer price index report showed US prices unexpectedly rose in August, at an annual pace of 8.3%, not far from the four-decade peak reached in June. “The Fed was already going on a tightening path in the next several months and now they have got to actually increase that given this report,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management. “It’s pretty negative across the board for markets.” Fed funds futures are now pricing in a roughly 36% chance that the Fed next week raises its benchmark rate by a full percentage point, a view supported by analysts at Nomura, who on Tuesday forecast a 100 basis point increase in September.