Ira Singh
Khabar Khabaron Ki,24 May’24
Globally, inflation has surged due to a combination of factors including supply chain disruptions, post-pandemic recovery, and geopolitical tensions. Central banks in the United States, Europe, and other parts of the world have responded with interest rate hikes to curb rising prices. While inflation worries dominate economic discussions globally, Japan stands as a unique counterpoint with its prolonged era of slow growth and deflation. This distinct economic environment, influenced by the world’s oldest population, has created a backdrop that tends to favor bonds, contrasting sharply with the inflationary pressures seen elsewhere.
The minutes of Federal Open Market Committee (FOMC’s) latest meeting released yesterday, have expressed apprehension among economists and investors alike,over the rate-cut timeline as inflation remains above the US central bank’s 2 percent target, despite cooling significantly.
Policymakers suggested that the disinflation process could take longer than anticipated, making them apprehensive to start easing interest rates.Many policymakers also expressed willingness to tighten policy further, in case inflationary risks materialise. However, since the meeting, several policymakers including Chair Jerome Powell and Governor Christopher Waller have allegedly expressed doubts that the next action would involve raising interest rates.
Even though the meeting minutes along with the recent remarks from several policymakers have not caused distress of a possible rate hike, it has pushed rate-cut expectations farther away.
“The Fed meeting minutes indicate concern over the stubbornness of inflation. This means that the ‘higher for longer’ rate regime is likely to continue for some time more till clarity emerges on inflation. The rate cut expectations, therefore, further get postponed. Not a positive signal for the market, though not very negative,” VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, reportedly quoted as saying.
G-7 Meeting in Italy
The upcoming G-7 meeting in Italy will provide a critical platform for finance ministers and central bankers to discuss these developments. The slowing inflation trend will undoubtedly be a focal point of discussions, as the meeting will address the broader implications of inflation on global trade and investment flows. High inflation in one country can affect its trade partners, leading to a ripple effect across the global economy. Thus, understanding and mitigating these impacts will be a key focus for the G7 leaders.
In addition to inflation, other economic factors such as GDP growth, employment rates, and trade balances will be on the agenda, providing a holistic view of the global economy.