“If the Fed doesn’t do its job, the market will.”
Rising prices: A woman shops at a supermarket in Manhattan. Data due will likely point to US consumer inflation marching to a fresh four-decade high, thereby tying the Fed’s hands to another 75-basis-point rate hike in July. — Reuters
Industry titans have reasons to be annoyed. Data due will likely point to consumer inflation marching to a fresh four-decade high, thereby tying the Fed’s hands to another 75-basis-point rate hike in July. Not only did the S&P 500 and Treasuries both deliver negative returns this year, but the correlation between the two asset classes has turned strongly positive.
This is because the Fed is blessed with a currency that is going in the right direction. A strong dollar, which is necessary to tame domestic inflation, keeps portfolio money from fleeing US assets.EMs, on the other hand, don’t have such luxury. Central bankers there are trapped in a singular focus on inflation, responding more aggressively than expected, and still falling short of keeping up with the dollar.
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