The latest US inflation report for March, released on Wednesday, showed that inflation has slowed down slightly, with an annual increase of 5% compared to February's 6% gain. Excluding food and energy prices, the core inflation rate rose to 5.6%, up from 5.5% previously. While this suggests that US inflation may have peaked, market experts warn that the Federal Reserve must still be cautious in its decision-making on interest rate hikes.
Market analysts predict that the Federal Open Market Committee (FOMC) will announce a quarter-point interest rate hike in May, despite concerns from investors about potential negative effects on the US economy. The time lag in monetary policies can be up to 18 months, which means policymakers need to anticipate economic conditions well in advance.
Investors are also increasingly concerned about the inverted US Treasury yield curve, which has been in place for 193 days, suggesting a tight credit market and weak economic growth. The yield curve inversion has often preceded US recessions since 1950, making it a key concern for investors.
Recent economic forecasts from the International Monetary Fund (IMF) further highlight the challenges facing the global economy. The IMF has predicted that global growth will be around 3% five years from now, which is the lowest medium-term forecast in over 30 years. The slower growth prospects are due to factors such as increasing living standards in economies like South Korea and China, weaker global labor force growth, and geopolitical issues like Brexit and Russia's invasion of Ukraine.
In this context, market analysts are advising investors to focus on sectors that perform well in a stagflationary environment, where there is both stagnant economic growth and high inflation levels. These include commodities like oil, consumer staples like food and hygiene products, healthcare, and utilities like electricity, gas, and water.
On the other hand, the US government has announced plans to increase corporate taxes in order to fund infrastructure projects. President Biden's proposed tax hike could raise up to $2.5 trillion over the next 15 years, but has faced criticism from some business leaders and Republicans. The proposed tax increase would raise the corporate tax rate from 21% to 28%, and implement a global minimum tax rate for US multinational corporations.
Additionally, the US housing market has been experiencing a surge in demand, with prices reaching record highs in some areas. This has been driven by low mortgage rates and a shortage of available homes for sale. However, experts warn that this may not be sustainable in the long term, and that the housing market may face challenges as the economy recovers from the pandemic.
