As you can see from the accompanying table, markets ended the week higher despite somewhat hawkish comments from central bankers. ECB President Christine Lagarde, along with US Fed Chair Jay Powell and Bank of England Governor Andrew Bailey, warned about the persistence of inflation. They made it clear during the annual policy conference in Sintra, Portugal, that interest rates would be raised and kept at higher levels for as long as necessary.
During his speech at the European Banking Forum, Fed Chair Jay Powell expressed his belief that inflation would not reach the central bank’s target of 2% this year or next. He also indicated that policymakers are likely to continue raising interest rates, potentially including a rate hike at the end of July, before taking a break in August. Thus far, the US economy has demonstrated commendable resilience; as such, it may have the ability to absorb a 25-basis point rate hike at the next Federal Open Market Committee meeting. The Stocks gained on Friday, as the Fed’s preferred measures of US inflation cooled in May, and consumer spending stagnated, suggesting the economy’s main engine may be starting to lose some momentum. The personal consumption expenditure price index increased 3.8% year-on-year in May 2023, the smallest rise since April 2021, compared to a downwardly revised 4.3% advance in April. The Fed has always maintained their data dependent stance and need to be careful as to not overshoot rate hikes going forward as inflation continues to show signs of cooling.