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Inflations, Tariffs & Rates

The US economic surprise index was at -23, a level last seen in August 2022 when the post-Fed started to halt rate hikes. This time around the focus is on rate cuts and a negative surprise index does help as it indicates that actual data releases are below estimates. The most important release was inflation which came below the estimates. 

Is this enough for the Fed to start rate cuts in September as the Fed Rate Swap market has estimated? From the comments of the FOMC members it looks that are wanting to wait for more data before any particular adjustment to rates is done. 

Within the same period, the equity markets surely rejoiced as the S&P 500 rose by 1.54% within the week and crossed the 5300 level to reach a new high. Even the bond yields saw some level of relief.

This momentum needs to continue for the next few months. But given that the commodity market is witnessing a broad-based rally there will be some level of consumer price increase in the coming months. 

In addition to this US hiked tariffs on some important products that are imported from China. This would be another burden on consumers as these costs are mostly passed on. 

This is why the current momentum has its own risk along with Israel Hamas conflict that might escalate in the coming months. Thus, the uncertainty of the rate path remains so high that the markets currently do not factor.


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