A dramatic sell-off in financial markets and precious metals is a response to both the Federal Reserve's recent actions and the Fed's forecast for the next two FOMC meetings. At the May FOMC meeting, the Federal Reserve raised the Fed funds rate by half a percentage point and indicated that it is likely to continue the 0.5% rate hike trend at both the June and July meetings.This has led to a recent surge in US Treasury yields. The yield on 10-year Treasury bonds reached a high of 3.2%.
Higher yields on US debt have provided more support for the US dollar, making it more valuable than other currencies. This led to lower gold and silver prices.The sharp drop in US equities and precious metals over the past month could be directly attributed to rising inflation.On May 11, the US Bureau of Labor Statistics will publish the consumer price index for April. The consumer price index is currently at 8.5%, the highest reading since January 1982. Rapidly rising inflation is one of the reasons for the Federal Reserve's recent rate hikes. They are trying to slow economic growth to reduce inflationary pressures.Forecasts for the April consumer price index vary. Some analysts predict a levelling off of the peak of inflationary pressures, while others say inflation will continue to rise.According to Forbes, CPI data for April will be published today before the opening of the stock markets. It is expected that there will be a decline from 8.5% to 8.1%. To reach 8.1%, the monthly inflation rate would have to fall from 2.3% in January, 2.6% in February and 3.8% in March to no more than 1.25%.However, inflation forecasts published in Bloomberg Markets say that according to a New York Fed survey, long-term inflation expectations are still rising. In three years' time, inflation will be higher than it was a month ago. This is a potentially worrying sign for the Federal Reserve as the central bank struggles to maintain long-term expectations.Regardless of whether inflation levels continue to rise or hit a peak, they will still be permanent rather than temporary.Although action to raise rates sharply will lead to an economic slowdown, the Federal Reserve cannot control supply chain problems or geopolitical tensions in Ukraine, which have been major factors in causing the spike in inflation.
