Policies: Bluffing Or Not Bluffing

Major US indices rebounded following their most recent drops, after the release of inflation data, which reinforced expectations regarding the acceleration of the Federal Reserve's rate hike.

 Government data released yesterday revealed that the consumer price inflation index in America rose to 7% during December, the highest level since 1982.


During the testimony before the US congress, Chairman Jerome Powel was expected to announce the possibility of increasing interest rates 4 times instead of 3 during 2022 if need be.

 However, he seemed less hawkish and less aggressive than what investors expected, knowing that a couple of days earlier, Goldman Sachs expected that he will have the same tone as previous times.


US President Joe Biden said that the consumer price inflation report is an indication that the price hike has begun to slow, but at the same time, he acknowledged the need for Americans to return prices to reasonable levels.

 This shows that Biden is trying to be the good father of the states by trying to be optimistic regarding the further increases in inflation, however, he has a point to a certain extent because it is not healthy to see sudden decreases in prices. 


Between Tuesday and Wednesday, records show that the major US indices rose approximately 2% on average. 

 Now the focus is on the earnings for the 4th quarter of 2021, whereby the financial sector is taking the first step towards releasing.


Figure 1 (Source: Refinitiv Eikon, Earning and Revenue S&P 500)


However, the expectations (Figure 1) show that earnings might be less than the previous 3 quarters of 2021, especially, due to the increase in inflation along with the fears that occurred from Omicron.


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