NEW YORK: On Thursday, stock markets showed mixed results as investors weighed strong US economic data against renewed warnings from central banks regarding further interest rate hikes to combat inflation.
Wall Street opened with little change, while Treasury yields and the dollar rose following the Commerce Department’s upward revision of the first-quarter growth rate to 2.0 percent.
Although this growth rate is slower compared to previous quarters, it indicates that the US economy is withstanding the repeated interest rate hikes implemented by the Federal Reserve to address inflation concerns. Strong consumer spending, despite inflation eroding purchasing power, played a significant role in driving growth during the January to March period.
Analyst Patrick O’Hare at Briefing.com commented, “Granted this is a backward-looking report, yet the key takeaway is that it underscores how the strength of the labor market fueled consumer spending in the first quarter and helped forestall any recession-like trajectory in the US economy.”
Strength of US Economy
The latest data on first-time jobless claims, which decreased to 239,000 last week, further indicated the ongoing strength of the US economy. O’Hare added, “In the recessions seen since 1980, initial jobless claims have averaged north of 375,000, so the key takeaway from today’s report is that the labor market continues to be resilient, which is a good portent for the economy.”
These positive economic indicators increase the likelihood of the Federal Reserve raising interest rates again at its July meeting, following its decision to hold off at the June meeting to assess the impact of previous rate hikes on the economy.
Federal Reserve Chairman Jerome Powell reiterated his warning at a banking event in Madrid, stating that two more rate hikes were likely necessary by the end of the year, as there is still “a long way to go” to bring inflation down to the Fed’s two-percent target. Powell had previously expressed during a gathering of central bankers in Sintra, Portugal, that current policy had not been restrictive enough for a sufficient period.
