We may definitely reach the 2% US CPI target by year end: Nadia Elbilassy

“Actually, traders are now assuming and anticipating in the Fed meeting that there is likely going to be a pause. This is suggested by obviously the positive figure from the CPI and also the NFP figure suggested otherwise,” says Nadia Elbilassy, Market Analyst, Equiti Group.

Your first comments on the latest inflation data 4.9% which is less than 5% as the inflation number that was recorded in March. It is slowing but only marginally. What do you think is the way forward and how do you read this?
The US CPI has dropped marginally lower actually from the 9.1% peak that we saw earlier on last year, so it is definitely a wider gap there. We have seen that inflation drop down by a lot from 9.1% to 4.9% after a lot of 0.75 rate hikes and now a 0.25 rate hike, so there definitely could be a pause. Actually, traders are now assuming and anticipating in the Fed meeting that there is likely going to be a pause. This is suggested by obviously the positive figure from the CPI and also the NFP figure suggested otherwise.

So the Fed does have the capacity to increase rates furthermore so now we wait and we see on the CME too. According to CME, more than 80% of analysts and traders do believe that we are going to see a Fed pause.

You are saying that you are going to see a Fed pause. However, the Fed has categorically stated that it is quite flexible as far as hiking or reducing rates are concerned. But Nadia, you sound very optimistic. However, let me bring you to our next question which is the fact that the CPI number is still well above Fed’s desired rate of around 2% to achieve stable and sustainable growth. Now, how will that be achieved and how long do you think it will take for inflation to come down to that figure?
I think by the end of the year we could definitely reach the 2% target. But I do believe that there will be more rate hikes required. I mean, it is possible for the Fed to pause on that cycle. However, it is working. Inflation is dropping down. There is a good drawdown to that but the only thing here is the negative aspects that we have on the economy in terms of labour markets or retail sales and different kinds of economic indicators. So that will majorly depend on the economic indicators that we do receive and just like I previously stated, the NFP did prove that the labour market remains intact and so this is up to the Fed to now decide whether they want to weather another storm of rate hikes or is it enough for businesses and in general for banks to increase that interest percent on borrowing, because it does have a negative scope in terms of affecting individuals.

What cues do you think global economies are going to take from this?
Well to begin with, we have already seen that for example oil prices are still stabilising. We are seeing that major economies are anticipating a soft landing or a recession. So if the Fed does stop this rate hike, it will lower the chances of us going into a hard landing or a recession that is much uncalled for or unanticipated for. So I think in terms of getting the economy ready or at least there is no such thing as having an economy ready for a phase of unemployment or a phase of prices reaching the peak of inflation rate. So definitely, I think the economies are going to be well assumed that we are having a soft landing, but it will affect the economy on the downside.

And talking about the global macroeconomics, now there is a liquidity crisis in the United States. Banks are getting affected. Markets are already hesitant. And then very recently, we also heard of the debt ceiling crisis which is again one of the most pressing issues. What does the path look ahead?
Definitely, we are reaching a debt ceiling. But the only reason for us to or the only tool that we have to is to increase the debt ceiling, which we have seen multiple times and many years ago that every time that we reach that they put push or they put more chances of us raising that ceiling.

And I think that is the only tool that we have left. Otherwise, they could use some of the fiscal policy budgets that they have contributed to other sectors to allocate them to the debt ceiling crisis, as well as us suffering from the banking crisis, which we are likely more to see more banks suffer from this as it falls in line with the domino effect.