US inflation figures for December 2022 were published yesterday at 6.5% pa falling from 7.1% pa in November.
This means that the Federal Reserve’s approch to more aggressive interest rate increases compared to the rest of the G7 nations combined with lower fuel and wholesale energy prices is working.
Markets reacted in positive manner with all stock market indices recovering even further with the FTSE 100 hitting numerous year highs and closing on Friday just short of its ‘all time’ time high set on 22nd May 2018 of 7,877.
We have said many times that central banks such as the Bank of England have not been as aggressive as the Federal Reserve and should have been. We are already in recession anyway and a short, sharp, higher increase in interest rates would mean less financial pain in the long term despite a tougher hit in the short term.
We expect the Bank of England to increase interest rates again on 2nd February 2023 whereas we expect the Federal Reserve to hold rates. This means any recession will drag out on UK and Europe behind the US that will recover more quickly.