As usual, Larry Summers, Bill Clinton’s former Treasury Secretary, played the useful killjoy: “We must take seriously the possibility that the next rate movement will be up rather than down”, declared the economist on Wednesday April 10, following the publication of March inflation figures. These are bad and deteriorating. Over one year, prices increased by 3.5%, more than expected and more than in February (3.2%).
Above all, the situation continues to deteriorate month by month. 0.1 point increase in October, 0.2 in November and December, 0.3 in January, 0.4 in February and March. “Over the past three months, underlying inflation [hors énergie et alimentation] grew at an annual rate of 4.6%. That’s faster than any three-month period from August 1991 to 2020.”, alarms Jason Furman, economist at Harvard. The rise in gasoline prices does not explain everything. The recovery in prices is widespread, particularly worrying in services (5.4% over one year). This “sticky” inflation could persist all the more as the country created 303,000 jobs in March, much more than expected.
As a result, it appears almost certain that the American Federal Reserve (Fed) will not reduce the interest rate on money, currently set at more than 5.25%, at its June meeting. Its leaders took turns last week to warn that there was no urgency to lower it. The markets which at the start of the year predicted up to six rate cuts this year are only betting on one or two, after the general elections at the beginning of November. “It is often said that the Fed takes the stairs to raise rates and the elevator to lower them. There, it seems that it will be the opposite,” said Richard Flynn (Charles Schwab).
Wall Street ends down
Logically, ten-year rates soared to 4.54%, halfway between the high of 5% recorded in October 2023, after the Hamas attack in Israel, and the lowest of 3.8%. hit at the end of December 2023 when markets were betting on a rapid drop in rates. This tension caused Wall Street – which says high rates, less growth, less valuation of future profits and increased financial costs – to retreat during the session, in particular small companies that are very sensitive to rates and whose morale is at its lowest. Ultimately, the Russell 2000 index lost 2.5%, while the tech-heavy Nasdaq and the S&P 500, which represents large U.S. companies, ended down 0.84% and 0.95%, respectively. .
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