Prices in the United States did not increase between September and October, while they only increased by 3.2% over one year, according to figures published Tuesday, November 14 by the American Department of Labor. Result, it was fireworks on Wall Street: operators now consider the probability that the Fed, the American central bank, will increase its rates at the end of the next meeting of its monetary policy committee, in mid-December , is almost zero.
Logically, market rates have fallen. The yield on ten-year US government bonds fell sharply, from 4.6% to 4.45% – this figure had exceeded 5% in October, its highest level since 2007. Who says lower rates said higher present value of future profits and reduced financing costs. Consequence: the S&P 500 index of large American companies ended Tuesday’s session up 1.9%, while the Nasdaq, rich in technology stocks, jumped 2.4%.
In reality, operators believe that the Fed, despite its declarations of firmness, is finished with its cycle of rate increases. These went from a little more than zero in March 2022, at the end of the Covid-19 crisis, to 5.25% at the end of July, the latest increase to date. “Inflation is dead”proclaims Californian investor Ross Gerber on X.
In detail, the index benefited from the drop in gasoline prices, which fell by 5% in one month. The index excluding energy and food increased by only 0.2% (compared to 0.3% the previous month) and by 4% year-on-year. This latest figure is the lowest in two years. Two thirds of this increase is explained by housing, whose prices increased by 6.7% over one year, despite the increase in rates recorded for more than eighteen months.
Biden: “I’m not going to give up”
Joe Biden immediately welcomed this better than expected figure. “Inflation is now down 65% from its peak (…). I am fighting to continue to reduce costs for families (…). I’m not going to let go”tweeted the President of the United States, who was delighted that “the unemployment rate has remained below 4% for twenty-one consecutive months – the longest period in more than fifty years.” Polls show Americans don’t credit Joe Biden for progress on inflation, while Fed Chairman Jerome Powell warned of risk of being “misled by good figures for a few months”.
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