Many analysts are voicing concerns that headwinds in the US economy may undermine the economies of many countries. The main problem now is soaring inflation that may trip the steady recovery of the world economy.
Skyrocketing energy, products, and services prices in the United States are unlikely to subside in the near future. Recently, the US inflation rate has hit the highest level in three decades. Analysts are sure it will rise to new highs.
In October 2020, inflation amounted to 6.2% in annual terms. Back then, it caused panic among investors. The Consumer Price Index (CPI) has been climbing for the third month in a row. According to analysts' records, it has not happened since the 1980s of the 20th century.
The stock market sank sharply due to inflation risks. The S&P 500 dipped by 0.82%, the Dow shed 0.66%, and the NASDAQ Composite lost 1.66%.
Market experts believe that the negative consequences of the coronavirus crisis are the main reason for high consumer prices. To maintain financial stability, the Fed had to launch the QE program. As a result, the Fed injected $120 billion into the economy a month and kept the interest rate near zero.
The energy crisis has literally added fuel to the fire. Growing petrol prices adversely affected the cost of many products. “Inflation hurts Americans pocketbooks, and reversing this trend is a top priority for me," President Joe Biden said in a statement.
Earlier, the Fed announced a gradual reduction of asset purchases. It would taper Treasury purchases by $10 billion and mortgage-backed securities by $5 billion per month. Analysts reckon it may cap inflation. They also believe that at the next meeting, scheduled for December 15, the regulator may decide to cut the volume of Treasury bond purchases by $25-35 billion.
Apart from that, the central bank is mulling over a possible interest rate hike. Now, the benchmark rate is near 0-0.25%. The Fed has more than once stated that it will keep the interest rate near zero until full employment is reached. Currently, the figures of the labor market are rather mixed.
Investors are now a little confused. They are usually guided by the decisions of the regulator. If the long-term prospects of the US economy deteriorate, they may increase purchases of assets of developing countries. This possibility worries analysts. They fear that inflation in the US will spread to emerging markets.