Rate hike, not cut, after inflation data? Market reacts sharply.


April 10th's US CPI, higher than expected, quashed rate cut talks, stunning the market despite prior forecasts.

The market was in uproar following the release of the most recent Consumer Price Index (CPI) figures for March in the United States, provoking even a former U.S. Treasury Secretary to voice his opinions. He believes that the market needs to carefully consider the possibility and risks of the Federal Reserve leaning towards rate hikes rather than cuts.

Summers also shared his estimation on the likelihood of rate hikes, believing there is a 15%-25% chance of raising rates instead of lowering them, which he regards as a significantly high probability.

In Summers' view, lowering rates now would undeniably be a mistake, calling it a “dangerous and shocking error.” He compares this potential misstep with the Fed's errors in the summer of 2021, firmly believing there is no current need for rate cuts.

However, Summers did not completely dismiss the possibility of future rate cuts. He suggests that circumstances could change, with economic conditions and market situations possibly shifting, hence not ruling out the potential for rate cuts later, but they may not be as substantial as previously predicted.

As Summers spoke, inflation in the United States remained stubbornly high. According to the latest figures from the Bureau of Labor Statistics, the CPI in March exceeded expectations, accelerating to a 3.5% year-over-year increase, with the core CPI also unexpectedly accelerating to 3.8%, marking the third consecutive month it has exceeded expectations.



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Interest rate

Interest rates are one of the most crucial variables in the financial markets, affecting the economic decisions of individuals, businesses, and governments. In a broader sense, interest rates are defined as the cost of borrowing or the price of using funds, usually expressed as a percentage in the form of an annual interest rate. The level of interest rates directly influences economic investment, consumption, savings, and the overall rate of economic growth.

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