Market Update

Following the remarks by Fed Chair, Jay Powell, on Tuesday, 7 February 2023, several other Fed policymakers voiced their perspectives this week. Their collective stance echoed Powell's balanced outlook: while upcoming CPI inflation figures are likely to show disinflation, indicating the peak of inflation is past, the trajectory towards the targeted 2% might experience turbulence. This implies that an increase in US interest rates may be essential and might remain elevated for a more extended period than previously anticipated.
Their hawkish tone is understandable, given the circumstances. Even though there are evident signs of a deceleration in global inflation and the worldwide economy, policymakers are cautious about declaring an early triumph, particularly considering the current tightness of global labor markets.
Given this backdrop, the near-term trajectory for interest rates seems to be heavily influenced by incoming data, underscoring the significance of the US CPI inflation data due next week.
On another note, the UK economy, after a 0.2% contraction in Q3, managed to stave off a recession by maintaining stability in Q4, as back-to-back quarterly GDP declines technically define a recession. While this is somewhat uplifting, a mild recession in the UK this year wouldn't be shocking, considering the diminished consumer spending due to the prevailing cost of living crisis and the economic setbacks from ongoing industrial disputes.