Stagflation Ahead? Fed Faces Tightrope Walk as Inflation Persists, Growth Slips


  • GDP and PCE inflation data disappointed yesterday.
  • This data raises the question: will it be possible to beat inflation without triggering a recession?
  • Meanwhile, the US dollar has corrected, with bears eyeing key support around 105.
  • In 2024, invest like the big funds from the comfort of your home with our AI-powered ProPicks stock selection tool. Learn more here>>
  • Economic data released yesterday painted a concerning picture for the US economy. While markets have largely avoided panic, the numbers suggest the much-desired soft landing may be increasingly unlikely.

    growth came in at a sluggish 1.6% QoQ, falling short of expectations. inflation, a key metric for the Fed, surprised on the upside at 3.7%, marking the highest level since last November. This combination of slowing growth and persistent inflation raises the risk of stagflation – a scenario the Federal Reserve is desperately trying to avoid.

    Further data releases in the coming weeks will be crucial. If the current trend holds, the Fed, aiming for a soft landing, may now face a tougher challenge. Policymakers will have to navigate a delicate balancing act – taming inflation without triggering a recession.

    US Data

    Stocks, Currency Pairs Awaiting Fed’s Next Move

    Both currency and equity markets struggled to find direction yesterday. The initially dipped but clawed its way back to positive territory by day’s end. Similar behavior was seen in the and , which recovered losses, suggesting the worst-case scenario isn’t yet upon us.

    Markets are likely to remain cautious as they await key data from the US labor market and, most importantly, the Federal Reserve this Wednesday. With no interest rate changes expected, all eyes will be on the accompanying and Jerome Powell’s for clues on the Fed’s future direction.

    Pivot or Pause?

    According to Bloomberg, Treasury Secretary Yellen is optimistic, believing the US economy can handle inflation without significant job losses. This raises the question of what path the Fed might make.

    The first, and more market-friendly scenario, would involve the Fed cutting rates once inflation reaches its target. This would be positive for financial markets. However, the Fed also needs to watch economic growth and prevent a recession. If they change their stance to dovish to combat a recession, inflation could surge once again.

    US Dollar Retreats

    Since mid-April, the has been in a correction. The first target for bears is the 105-point zone, which also coincides with a major correction point in the prior uptrend.

    US Dollar Index Chart

    Just below this lies a key support level defined by the uptrend line. A break below this support could signal a breakdown of the local uptrend. If that happens, sellers might target the next demand zone around 104 points.


    Want to try the tools that maximize your portfolio? Take advantage HERE AND NOW of the opportunity to get the InvestingPro annual plan for less than $10 per month.

    For readers of this article, now with the code: INWESTUJPRO1 as much as a 10% discount on annual and two-year InvestingPro subscriptions.ProPicks: AI-managed portfolios of stocks with proven performance.

    • ProTips: digestible information to simplify a lot of complex financial data into a few words.
    • Advanced Stock Finder: Search for the best stocks based on your expectations, taking into account hundreds of financial metrics.
    • Historical financial data for thousands of stocks: So that fundamental analysis professionals can delve into all the details themselves.
    • And many other services, not to mention those we plan to add in the near future.
    • Act fast and join the investment revolution – get your OFFER HERE!

    Subscribe Today!

    Disclaimer: The author does not own any of these shares. This content, which is prepared for purely educational purposes, cannot be considered as investment advice.

    3rd party Ad. Not an offer or recommendation by See disclosure here or
    remove ads

    Source link