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Inflation is still a hot topic, and not only in the US. Despite numerous interest rate hikes by the Bank of England, the country is still far from price stability. To be fair, there is a tiny hint of progress, but it is the progress made in spirals.
Even the fact that UK CPI moderated in March to 10.1%, up from 10.4% in February, cannot be perceived as a success, as analysts expected a number below 9.8%. Long story short, this means the regulator’s hand would “remain iron” for now.
The ECB is struggling too. Given the high levels of core inflation in the Eurozone (the monthly figure stands at 0.9%, a rate still extremely high), Philip Lane, the regulator’s chief economist, insists on further interest rate hikes.
The Governor of the National Bank of Belgium and member of the ECB Governing Council, Pierre Wunsch, even said he would not be surprised to see the ECB’s deposit facility rate at 4%. Finally, BCF Governor Olli Rehn said the regulator’s work is far from over.
As for the US, the focus shifts to the looming default risk. Last week, one-year US CDS surged to the highest level since at least 2008. Elon Musks’ words that “given federal spending, it’s a matter of time, not whether we default,” probably added fuel to the fire…
Analysts at JPMorgan expect the debt ceiling to become an issue as early as May, and that the debate over both the ceiling and the federal funding bill will come closer to the final deadlines. It should be added that the Treasury could run out of available resources by mid-August.
Overall, the US budget deficit this year is projected to be $1.4 trillion, up about $400 billion from May 2022. Looking ahead, the deficit could rise to 6.9% in 2033, well above the 50-year average of 3.6% of GDP. Not the best perspective both for the country and the US dollar (DXY) if you ask an economist.
