Will US inflation Numbers Correct Global Stock Market?

Introduction:

Federal Reserve is the central bank of the United States which provides the nation with a safe, flexible, and stable monetary system. Recently the numbers that were given by US Federal Reserve where the inflation rate seems to be high which is about  4.2% YoY.

US Inflation Rate Scenario:

• The US Federal Reserve shared its inflation numbers which are 4.2% YoY which is high.
• Last year at the same time the base effect was low so this number looked high. The growth that has happened of inflation Month on Month has increased by 0.8% which was expected to be 0.2%.
• As per market expectation, the market inflation was expecting the figure of 3.6% but the number came out to be 4.2%.
• Therefore after seeing these numbers US market went down but settled the very next day.
• The market is getting nervous as per the Federal reserve the inflation of less than 2% is good inflation for the economy. That inflation will support the growth rate.
• The comfort level of inflation for the Reserve Bank of India is around 4% to 6%. For the US federal reserve, the same thing is in between 1% to 2% to support the growth.
• As per US Federal Reserve if the inflation goes more than 2 % then it is said to be “Hyper Inflation”.To control this Hyper Inflation the US Federal might hike its Interest rates.
• Currently, the US wants to maintain quantitative easing means monetary easing done by the federal reserve. This means the liquidity in the market will be maintained. They also said they will tell in advance when they will be doing QE Tapering (withdrawing the money).
• As per the market predictions, the US Federal Reserves would take very strong actions looking at the current inflation rate.
• It is also predicted that to control the inflation there could be an increase in Interest rates, hence there will be less demand, when the supplies are more and demand is less the inflation could get controlled. There is a dicey situation in about US Federal Reserve will wait and watch in coming months.
• As per the notification by the President of America Mr. Joe Biden the people who have completed vaccination need not wear the mask, which means they have got the comfort about this pandemic that has got under control.
• It means there could be an increase in spending which is also called revenge spending this could impact inflation numbers which could be bad.
•  It also means there could be a coupling effect and it will be hitting globally. There won’t be any knee-jerk reaction as last year.

Conclusion:

This inflation is also a hope as things are getting back to normalization. The nervousness could be there for a shorter duration as the market is looking in a confused state even though the US Federal Reserve will be intimating in advance about increasing the interest rates. It is not known when they will be implementing it. There won’t be a crash as seen before. But from the peak, there could be a correction of 10-15% which is good as a consolidation in the market.