ASX Turns Up as Wall Street Struggles for Direction

The Federal Reserve, like other central banks, has aggressively raised interest rates to slow the economy and fight inflation. The Bank of England launched its biggest interest rate hike in more than a quarter century on Thursday.

Recent economic data from retail sales and employment reports show the economy is already slowing.

“Sometimes the cure for high inflation is high inflation,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. That story is validated by some of the data that emerges.”

Soaring consumer demand and short supply of many commodities initially caused inflation. The resulting increase in prices has encouraged consumers to spend less. But the Fed’s aggressive interest rate policy has investors worried that the central bank could put the brakes on the economy too much, pushing it into recession.

This concern is also reflected in the bond market, where 2-year Treasury yields remain higher than 10-year Treasury yields. It’s a relatively rare event to be seen as a harbinger of a recession within a year or two.

A bright spot in the broader economy is a strong job market. New data from the Labor Department on Thursday showed an expected increase in the number of Americans who filed for unemployment benefits last week as the number of unemployed continues to rise moderately.

The latest data show that following an update earlier this week, job openings have eased but remain at record highs. On Friday, the Labor Department will release her July employment report. This is expected to show signs of tightening.

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Investors are keeping an eye on the latest jobs data to determine whether a tightening job market could eventually allow the Fed to ease rate hikes and reduce the chances of the central bank slipping into recession.

“They wanted to keep demand down and inflation down, and they wanted to do it without unduly hurting the labor market,” Nixon said. “So far, the Fed plans to evaluate all of these as planned and will continue to do so.”