Global markets on tenterhooks ahead of US Fed’s next meeting

GLOBAL markets are facing the nightmarish prospect of the US Federal Reserve raising interest rates by a full percentage point when it meets next week, in the wake of a surprisingly torrid inflation report for the month of August.

In the lead-up to the report’s release, all the talk was of “peak inflation and peak interest rates”. Market watchers believed that there were signs the topping out would allow the Fed to boost rates more incrementally than at its last 2 meetings. Traders were already celebrating this imaginary 50 basis-point (bp) increase as the first step in a “pivot” away from the Fed’s hawkish policy.

The celebrations, as they turned out, were premature. The only thing that peaked, and was associated with the inflation data, was the stock market. Consumer price inflation rose 8.3 per cent from a year earlier in August, showed the Labor Department’s index, which tracks a basket of staple goods and services. That was down slightly from July levels, but far higher than economists had anticipated.