12 October 2023
If you are covering the latest US inflation data, please see the following comment from Marcus Brookes, chief investment officer at Quilter Investors:
“US inflation held at 3.7% in August, following a slight uptick over the summer, while core inflation increased by 0.3%. Despite its refusal to budge more recently, the US remains in a much better place in the battle against inflation compared to other developed economies, and it is from this position of strength that its economy has been able to resist any recessionary prediction to date.
“However, just as markets were concerned when inflation spiked last year, they will be equally as concerned about the future path of inflation and what happens next. As inflation has come down, it has become incredibly stubborn once again and is not likely to reach target for some time. This leaves the Federal Reserve in a tricky place once again. It wants inflation to come back to target, but as it is likely to persist above that level for some time, what can it do? One option it has been mooting is to act now and carry out another interest rate rise this year, but risk overcorrecting. Or it can wait and continue with this higher for longer message that has spooked markets in recent weeks, but risk moving too slowly.
“The current level of interest rates and the speed in which they have been raised should be enough to bring inflation back down, and given the lag effects of monetary policy it needs to be given a chance to work. Clearly geopolitical issues of recent weeks could have an inflationary impact and thus will need to be watched closely, but for now the contagion effect is low.”
