UNITED STATES (OBSERVATORY) – Macroeconomic statistics from the US at first glance did not have a serious impact on the market, but important changes did take place, and they concern the Federal Reserve System.
According to statistics on GDP growth for the first quarter, the US economy continues to expand, but it should be noted that the current growth was minimal for the year. Experts note that the economic outlook is becoming increasingly grim, but the price pressure remains. In particular, the index of the cost of employment has peaked since 2008. This convinced market participants that in June the Federal Reserve will raise rates.
As can be seen from the chart below, the probability of a rate hike in June is 93.3% – the highest rate in recent times.
By the way, it was the confidence in further tightening of monetary policy that led to an increase in the yield of two-year Treasuries to 2.5%. The increase in profitability at the short end of the curve and a slight decrease on the long led to an even stronger smoothing of the yield curve, which in turn signals the likelihood of an impending recession.
It is worth noting that for some reason, very few people say, but after the release of statistics, the probability of an increase in the rate of the Fed by 0.25 basis points is already growing next week. Now it is 34.2%.
To understand what this all means for the economy, you need to continue to monitor the changes in the yield curve. The flatter it becomes, the higher the probability of a recession.
By the way, earlier we noted that it is the Federal Reserve that can ruin economic growth. We also wrote that the current situation is unique in its essence. Never before in history has fiscal stimulus been conducted at the same time. It turns out that some measures are aimed at the development of the economy, and others – to slow it down. All this looks very strange.
In addition, the reluctance of investors to buy US debt leads to an increase in the cost of borrowing and, as a result, to an increase in debt servicing costs. But that’s not all. The States have sharply increased spending and will carry out colossal borrowing.
In general, according to Bank of America estimates, the United States in the coming years will be the only developed economy that will increase the ratio of public debt to GDP.
Partly, therefore, the American government bonds, according to the bank’s experts, will no longer be a safe haven.