Wall Street Believes Inflation is Subsiding

New York, NY, July 17, 2023-"Wall Street is more convinced than ever that inflation is subsiding,” reports the Wall Street Journal.

“That’s giving investors hope that the Federal Reserve might be able to pull off what once seemed impossible: containing pricing pressures without tipping the economy into recession.

“The economic data that came out this past week could hardly have been better. The consumer-price index, which tracks prices for everything from used cars to groceries, rose in June at the slowest year-over-year pace in more than two years. Inflation in wholesale prices cooled even more. An index measuring the prices fetched in June by warehouses, factories, farms and energy producers rose at its slowest pace since August 2020.

“The reports should help ease what has been one of investors’ biggest fears over the past year. The Fed has been rapidly raising interest rates to try to rein in inflation. Many money managers have worried that the Fed’s moves would lead to a recession. That is because when interest rates go up, so does the cost of borrowing money. That typically slows down spending and hiring among consumers and businesses-often to the point that the economy tips into a downturn. 

“The longer it takes for the Fed to bring inflation back to prepandemic levels, the more likely a recession seems. If inflation cools quickly enough, however, investors believe the Fed might be able to finish its interest-rate increases while leaving the economic expansion intact.

“That’s exactly what markets seem to be pricing in.”