Stock markets in the United States experienced a strong rise on Tuesday following the release of data showing that US inflation had slowed more than expected. The US consumer price index (CPI) increased by 3.2 percent in the 12 months to October, down from 3.7 percent the previous month, according to the Labor Department. Analysts had predicted a smaller decrease to around 3.3 percent.
This moderation in inflation has raised hopes that the Federal Reserve may pause its interest rate hikes for the time being. Bond yields and the value of the US Dollar both fell as a result, with the Dollar now at its weakest level against the euro in two months.
The positive market response was evident in the Dow, which rose by 1.7 percent two hours into trading on Wall Street, and the tech-heavy Nasdaq, which advanced by two percent. However, despite this positive news, annual inflation in the US still remains well above the Federal Reserve’s target of two percent.
Recently, the Federal Reserve chose to maintain its key lending rate at a 22-year high for the second consecutive meeting, leading some analysts and traders to believe that the tightening of monetary policy had come to an end. However, various policymakers, including Fed Chair Jerome Powell, have since indicated that they are prepared to raise rates again if necessary in order to bring inflation down to target levels.
The latest inflation figures will now be closely examined in relation to upcoming speeches by Federal Reserve decision-makers. These speeches will provide further insight into the central bank’s plans for interest rates.
In the United Kingdom, the London FTSE-100 index did not perform as well compared to its American counterparts. Official data revealed that UK wages rose faster than inflation, which has reignited concerns about the possibility of British interest rates remaining at multi-year highs for a longer period than anticipated, or even rising further.
However, it is expected that official data to be released on Wednesday will show a significant drop in British annual inflation. This will likely have an impact on the Bank of England’s decision-making regarding interest rates.
In other news, the price of West Texas Intermediate crude oil increased by 1.8 percent, reaching $79.70 per barrel.
Overall, the stock market’s strong performance in response to the moderating inflation data from the US has provided hope that the Federal Reserve may hold off on further interest rate hikes for now. However, the ongoing uncertainty surrounding inflation and interest rates in both the US and the UK means that investors will be closely monitoring upcoming economic data and speeches from central bank officials.
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