Inflation

Optimism over lower rates spurred a shift into riskier corners of Wall Street — as money exited the long-favored safety trade of technology megacaps.

Stubborn inflation is expected to work its way down, but combined with higher-for-longer interest rates, consumers are feeling the effects differently across the credit spectrum.

In sessions on Tuesday, panelists said although inflation is sticky, long-term inflation expectations are very well anchored and he consumer picture is not as dire as previously thought, allowing certain risk markets to embrace a soft landing.

The so-called core consumer price index climbed 0.3% from March, snapping a streak of three above-forecast readings which spurred concern that inflation was becoming entrenched.

Policymakers need more evidence that inflation is heading sustainably to the central bank's 2% goal before acting, he said.

The annual inflation rate has dropped to 3.2% in October from its 2022 peak of more than 9% after the Federal Reserve embarked on an aggressive campaign to cool price pressures.

The bond market recovery has come amid some bouts of wild back-and-forth swings, yet is gaining ground since the Fed left its benchmark policy rate unchanged earlier this month.

The Federal Reserve released its semiannual financial stability report highlighting elevated asset values, funding issues and pockets of leverage as top concerns.

Inflation pressures are easing, which could give policymakers room to keep interest rates at or near current levels for the time being.

Much of the bullish case for emerging markets this year was predicated on a growth recovery led by China, which successive data releases have shown to be patchy at best and a non-starter at worst.

In a "Nirvana scenario" market experience all the gain (an end to nasty price increases for consumers) without much pain (a spike in unemployment or a major hit to the stock market).

Bostic said he agreed with the view that "the bar to justify further rate hikes is higher than it was a few months ago."

A key gauge of prices closely watched by the Fed continued to rise at a concerning pace. The core CPI rose 0.4% for a third straight month, in line with estimates.

Bond traders have overestimated month-over-month headline inflation heading into four of the last seven Consumer Price Index releases, says strategist Raghav Datla.

Some 90% of 288 respondents in a Markets Live Pulse survey said companies on both sides of the Atlantic have been raising prices in excess of their own costs since the pandemic began in 2020.

The Federal Reserve will likely need to raise interest rates further and hold them higher for some time if US price pressures don't cool off and the jobs market shows no sign of slowing.

It's a debate that matters more than ever, as bond traders ponder the end of the Federal Reserve's aggressive campaign of interest-rate hikes and wager on cuts starting within months.

Economists lowered their projections for the consumer price index as well as the personal consumption expenditures price index for every quarter through the first half of 2024, according to the latest Bloomberg monthly survey.

As the US economy veered toward the biggest inflation shock in four decades, investors flocked to the one corner of Wall Street that seemed a sure-fire refuge.