Stubbornly hot US inflation is fuelling bets that the Federal Reserve will become more aggressive about trying to cool price pressures and perhaps ditch its forward guidance by delivering a jumbo-sized interest rate rise in the coming months.
Fed policymakers had already all but promised half-point interest rate rises at their meeting next week and again in late July, following May's half-point increase and the start of balance sheet reductions this month.
That would be more policy tightening in the space of three months than the Fed did in all of 2018.
On Friday, traders of futures tied to the Fed policy rate began pricing in an even bolder path after US Labour Department data showed sharply higher food and record petrol prices pushed the consumer price index (CPI) up 8.6 per cent last month from a year earlier.
A separate University of Michigan survey showed longer-term inflation expectations rising to their highest since 2008.
Prices of Fed funds futures contracts now reflect better-than-even odds of a 75-basis point rate rise by July, with a one-in-four chance of that occurring next week — up from one-in-20 before the inflation report — and a policy rate in at least the 3.25 per cent to 3.5 per cent range at year end.
Yields on the two-year Treasury note, seen as a proxy for the Fed's policy rate, topped 3 per cent for the first time since 2008.
“We believe that today's inflation data — both the CPI and UMich inflation expectations — are game changers that will force the Fed to switch to a higher gear and front-load policy tightening,” wrote Jefferies' Aneta Markowska, who joined economists at Barclays on Friday in forecasting a 75 basis points rate increase at the Fed's June 14 to 15 meeting.
Most economists still expect a half-point rise next week, and more of the same at subsequent meetings through at least September if not further.
Core CPI, which strips out volatile energy and food prices, rose 6 per cent in May, down slightly from April's 6.2 per cent pace but far from the “clear and convincing” sign of cooling price pressures that Fed chairman Jerome Powell has said he needs to see before slowing rate increases.
“Any hopes that the Fed can ease up on the pace of rate hikes after the June and July meetings now seems to be a long shot,” wrote Bankrate chief financial analyst Greg McBride.
Economists at Deutsche Bank concurred, and said they now forecast rates to rise to 4.125 per cent by mid-2023.
Families hunt for bargains amid rising prices globally — in pictures
Fed policymakers at the close of next week's meeting will release their own best guesses of how high they will need to lift short-term rates.
They will also provide forecasts of how much unemployment — now at 3.6 per cent — may need to rise before the economy slows enough to reduce inflation.
In recent weeks, some had expressed the hope that by September their own rate rises, along with easing supply chain pressures and an expected shift in household spending away from scarce goods and towards services, would have started to ease price pressures and allowed them to downshift to smaller rate increases.
Friday's inflation report suggested the opposite.
Used car prices, which had been sinking, reversed course and rose 1.8 per cent from the prior month; airline fares rose by 12.6 per cent from the prior month and 37.8 per cent from a year earlier. Prices for shelter rose 5.5 per cent, the biggest jump in more than 30 years.
The Fed's current policy rate target is now 0.75 per cent to 1 per cent. Fed officials want to get it higher without undermining a historically tight labour market and sending the economy into recession, but accelerating inflation will make that a hard task.
“These are ugly numbers … I’d say we’ll probably be in a recession in the fourth quarter of this year with confirmation in the second quarter of 2023,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
THE SPECS
Aston Martin Rapide AMR
Engine: 6.0-litre V12
Transmission: Touchtronic III eight-speed automatic
Power: 595bhp
Torque: 630Nm
Price: Dh999,563
SPECS
Engine: Two-litre four-cylinder turbo
Power: 235hp
Torque: 350Nm
Transmission: Nine-speed automatic
Price: From Dh167,500 ($45,000)
On sale: Now
Red flags
- Promises of high, fixed or 'guaranteed' returns.
- Unregulated structured products or complex investments often used to bypass traditional safeguards.
- Lack of clear information, vague language, no access to audited financials.
- Overseas companies targeting investors in other jurisdictions - this can make legal recovery difficult.
- Hard-selling tactics - creating urgency, offering 'exclusive' deals.
Courtesy: Carol Glynn, founder of Conscious Finance Coaching
MATCH INFO
First Test at Barbados
West Indies won by 381 runs
Second Test at Antigua
West Indies won by 10 wickets
Third Test at St Lucia
February 9-13
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COMPANY PROFILE
Initial investment: Undisclosed
Investment stage: Series A
Investors: Core42
Current number of staff: 47
Our legal consultants
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
match info
Chelsea 2
Willian (13'), Ross Barkley (64')
Liverpool 0
MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
MISSION: IMPOSSIBLE – FINAL RECKONING
Director: Christopher McQuarrie
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Rating: 4/5
COMPANY PROFILE
Name: Qyubic
Started: October 2023
Founder: Namrata Raina
Based: Dubai
Sector: E-commerce
Current number of staff: 10
Investment stage: Pre-seed
Initial investment: Undisclosed
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Tax authority targets shisha levy evasion
The Federal Tax Authority will track shisha imports with electronic markers to protect customers and ensure levies have been paid.
Khalid Ali Al Bustani, director of the tax authority, on Sunday said the move is to "prevent tax evasion and support the authority’s tax collection efforts".
The scheme’s first phase, which came into effect on 1st January, 2019, covers all types of imported and domestically produced and distributed cigarettes. As of May 1, importing any type of cigarettes without the digital marks will be prohibited.
He said the latest phase will see imported and locally produced shisha tobacco tracked by the final quarter of this year.
"The FTA also maintains ongoing communication with concerned companies, to help them adapt their systems to meet our requirements and coordinate between all parties involved," he said.
As with cigarettes, shisha was hit with a 100 per cent tax in October 2017, though manufacturers and cafes absorbed some of the costs to prevent prices doubling.
Farage on Muslim Brotherhood
Nigel Farage told Reform's annual conference that the party will proscribe the Muslim Brotherhood if he becomes Prime Minister.
"We will stop dangerous organisations with links to terrorism operating in our country," he said. "Quite why we've been so gutless about this – both Labour and Conservative – I don't know.
“All across the Middle East, countries have banned and proscribed the Muslim Brotherhood as a dangerous organisation. We will do the very same.”
It is 10 years since a ground-breaking report into the Muslim Brotherhood by Sir John Jenkins.
Among the former diplomat's findings was an assessment that “the use of extreme violence in the pursuit of the perfect Islamic society” has “never been institutionally disowned” by the movement.
The prime minister at the time, David Cameron, who commissioned the report, said membership or association with the Muslim Brotherhood was a "possible indicator of extremism" but it would not be banned.
The specs: 2018 Chevrolet Trailblazer
Price, base / as tested Dh99,000 / Dh132,000
Engine 3.6L V6
Transmission: Six-speed automatic
Power 275hp @ 6,000rpm
Torque 350Nm @ 3,700rpm
Fuel economy combined 12.2L / 100km
What can victims do?
Always use only regulated platforms
Stop all transactions and communication on suspicion
Save all evidence (screenshots, chat logs, transaction IDs)
Report to local authorities
Warn others to prevent further harm
Courtesy: Crystal Intelligence
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
The Bio
Hometown: Bogota, Colombia
Favourite place to relax in UAE: the desert around Al Mleiha in Sharjah or the eastern mangroves in Abu Dhabi
The one book everyone should read: 100 Years of Solitude by Gabriel Garcia Marquez. It will make your mind fly
Favourite documentary: Chasing Coral by Jeff Orlowski. It's a good reality check about one of the most valued ecosystems for humanity
UAE currency: the story behind the money in your pockets
