Amid a looming correction in booming markets, sectors that missed out might miss the worst of it
A trader works on the floor of the New York Stock Exchange in New York City, New York, US, on March 16 2022. Picture: REUTERS/BRENDAN MCDERMID
In February, US inflation had its highest reading in 40 years, at 7.9%. Inflationary pressure was already forcing the hands of central banks, with many signalling their intention to hike interest rates multiple times in 2022. Lifting rates would remove the “drug” of free money that fuelled US markets to record highs over the past decade.
The US Fed is caught between a rock and a hard place. The commodity price shock is creating an environment of lower growth and higher inflation. Hiking rates will further constrain economic growth and pull the plug on the stimulus that propelled US equity markets. Not hiking would lead to a loss of credibility and inflation becoming further entrenched in future expectations.
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