U.S. stocks and bonds remained steady on Wednesday as investors’ focus shifted towards further Federal Reserve interest rate increases. The two-year Treasury rate exceeds the 10-year by almost 50 basis points—a sign of an impending recession as the government seeks to curb inflation by limiting money flow.
A report set to be released on Wednesday is expected to show a decrease in the U.S. consumer-price inflation during July, albeit that it has remained relatively inflated compared to historical data. According to Craig Erlam, senior market analyst at Oanda, the inflation figure delivered by this report could have a major impact on investors’ outlooks on the market and in particular, their risk assessment.
“A lower-than-expected number could be a major tailwind for the markets while anything around or above the June reading could trigger a big risk reversal in the markets as the debate shifts to 75 or 100 basis points, with 50 left in the rearview mirror,” Erlam commented.
According to Federal Reserve Bank of St. Louis President James Bullard, the bank will be prepared to keep interest rates higher for an extended period of time in order to offset the rise in inflation.