Middle East violence heightens market fears of rate hikes, inflation
TO THE higher-ups at the US Federal Reserve, it must feel like a recurring nightmare: an overseas war driving up the prices of energy and commodities, just when the global financial system needs inflation least.
For investors, the nightmare is made worse by the sense that rescue from the inflationary, post-pandemic bear-market era was tantalisingly close at hand.
The Fed was extending the lifeline of rate cuts, saving them from the rough seas of costly credit, real-estate distress and bank instability brought on by the spike in Treasury yields and other benchmark rates. Now, some economists are even whispering that the Fed’s next action could be a rate hike, rather than a cut.
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