Investors Anticipate Higher Fed and RBA Interest Rates

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Investors expect the Fed and RBA to raise interest rates as mixed data from the United States suggests the world’s largest economy needs to slow down quickly enough to combat inflation.

Rising interest rates impact everyone’s finances in many ways. It typically makes all debt more expensive and creates higher income for individuals who save money.

As the Federal Reserve increases interest rates to combat inflation and prevent an overheated economy, the effects impact the economy and household finances.

American consumers made fewer purchases of expensive products and services due to higher interest rates, which caused retail sales to drop more than expected. 

Moreover, the Commerce Department reported that retail sales fell 1.0% last month, while they fell 0.2% in February instead of 0.4%.  

The University of Michigan claimed that in the preliminary consumer survey results, US consumer sentiment rose by 1.5 percentage points to 63.5 this month, compared to March at 62.0.

“Sentiment is now about 3% below a year ago but 27% above the all-time low from last June. Rising sentiment for lower-income consumers was offset by declines among those with higher incomes,” said Joanne Hsu, Director of the Surveys of Consumers.

Hsu added by saying that even while consumers have noticed a decrease in inflation for autos and durable goods, they still anticipate high inflation to continue, at least in the near future.

However, year-ahead inflation predictions increased by one percentage point from 3.6% to 4.6% in April.

On the other hand, import prices in the country fell more than expected last month, indicating that inflationary pressures are likely subsiding. 

Despite this, future traders have raised their bets that the US central bank will raise interest rates to deal with inflation. This shift in the outlook for interest rates caused yields on US 10-year bonds to rise, recording the biggest weekly gain since February.

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