Inflation is looming large in investors’ minds, with annual inflation hitting 8.6% in May – a forty-year high – based on the Bureau of Labor Statistics’ CPI reading unveiled on Friday. The most recent surge in prices was driven by increases in costs of food, gas, and energy. Shelter costs, which represent about a third of the CPI, rose at its fastest 12-month pace in 31 years.
Fears of an aggressive response to white-hot inflation from the Fed have created a tense atmosphere over the past couple of days, which included a global rout in stocks and the S&P 500 descending into bear market territory. Fixed income markets haven’t been spared as investors have retreated quickly from government bonds following last week’s surprisingly elevated inflation reading.
In making its decision, the central bank cited the “the invasion [of Ukraine by Russia] and related events,” which it said “are creating additional upward pressure on inflation and are weighing on global economic activity.
“COVID-related lockdowns in China are likely to exacerbate supply chain disruptions,” it added. “The Committee is highly attentive to inflation risks.”
