Fed Hike Fears Mount as US Inflation and Oil Prices Soar
Oil prices and high US inflation have cemented investor fears that the Federal Reserve will soon hike interest rates, despite potential negative effects on growth in the world's biggest economy.
The latest data from the US Bureau of Labor Statistics showed consumer price index (CPI) rose 0.4% from a month earlier, well above the Fed's 2% target.
Wall Street responded positively to the news, with the Dow adding 0.1%, the S&P 500 rising 0.9%, and the tech-heavy Nasdaq gaining 0.8%. European stocks also closed higher, with Paris and Frankfurt finishing up 0.8%.
Analysts are split on the implications of the data. Steve Sosnick, chief strategist at Interactive Brokers, said stock traders don't care about oil and bond prices, while Patrick O'Hare, chief market analyst at Briefing.com, noted that markets have been absorbing the likelihood of a rate hike through recent sell-offs.
However, Bret Kenwell, eToro US Investment Analyst, believes there is a 90% probability of a Fed rate hike next week, which would put Chairman Kevin Warsh on a collision course with President Donald Trump. James Knightley, chief international economist at ING, suggests the increase could be a one-off.
The sharp escalation in the US-Iran war and rising energy costs have driven oil prices to high levels, with Brent crude almost touching $110 per barrel. Average diesel prices in the United States climbed above $6 a gallon for the first time, posing a potential headache for Trump ahead of November's midterms.