28 May 2018

Bassanese Bites: US Inflation Test – Week beginning: 28 May 2018

US stocks ended modestly higher last week, reflecting the net effect of mixed forces.

On the one hand, the minutes from the latest US Federal Reserve meeting were reassuring, and failed to provide the signal the markets had been fearing that the Fed would raise rates three further times this year rather than two. Indeed, although core US inflation has now moved back up to around 2%, Fed members generally saw little risk that it would accelerate a  lot further anytime soon, and were prepared to tolerate inflation at or a little higher than current levels – without an accelerated interest rate tightening schedule – given inflation has been sub-2% for an extended period.

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