But just as investors around the world were breathing a collective sigh of relief at the increasingly likely prospect of a definitive end to the recent interest rate hiking cycle and the start of a cutting cycle, this likelihood has faded.
“We’ve said at the that we’ll need greater confidence that inflation is moving sustainably towards 2% before it would be appropriate to ease policy,” he said at the time. More concerning are the more recent murmurings that, rather than keeping US interest rates at their current levels for the remainder of the year, the Fed could even hike rates again this year, a prospect that markets were not entertaining until the last few weeks.
Our base case, however, is that US growth will gradually slow and this, combined with lower housing-related components in the US CPI basket, should see inflation ease down further over the balance of the year. Politics are also likely to play a role in rate setters’ thinking. For the first time since the dawn of democracy in South Africa, the ANC looks set to fall below 50%, meaning South Africa is entering an era of coalition government at a national level. This poses a considerable risk to the policy outlook.