Federal Reserve more cautious on rate cuts

This week has brought official confirmation of several recent trends. Sentiment is often hard to pin down. It evolves over time, sometimes quite swiftly, and so defining exactly how people feel about a particular issue can be difficult. This week has brought some much needed clarity on two big issues: How closely does the market’s view of inflation match the Federal Reserve’s? And, how bad are Rishi Sunak’s chances of re-election?

Investors have pushed back their assumptions for rate cuts due to rising inflation and robust growth in the US. The Fed held rates as expected and governor Jerome Powell effectively ruled out any further hikes. He warned that rates will remain elevated, while leaving room for a rate cut later this year and the slight drop in government bond yields shows markets broadly agree with the Fed’s view. Meanwhile, any doubts about the Conservatives’ popularity have been laid to rest as results from the local and mayoral elections show recent opinion polls are pretty accurate. Sunak and Powell will both hope that sentiment improves this year, but Sunak appears to have a tougher job convincing people he’s on the right track.

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