Uday Kotak, the founder of Kotak Mahindra Bank, is cautioning investors about possible rough times ahead in the global economy. He’s worried because the US inflation rate came in higher than expected. This might delay the US Federal Reserve from cutting interest rates, especially with rising crude oil prices. Kotak thinks China’s economy slowing down could make things even more uncertain.
Regarding the recent US inflation numbers, Kotak warned that things could get bumpy globally and dismissed the idea of the Federal Reserve cutting rates soon. He suggested that any rate cuts in the US might happen closer to the US Presidential elections. In March, the Consumer Price Index (CPI), which measures how much goods and services cost, increased by 0.4%, making the 12-month inflation rate 3.5%. That’s 0.3 percentage points higher than February. This faster-than-expected rise in prices is pushing inflation higher in the US.
Uday Kotak Warns of Global Turbulence
Uday Kotak, from X (formerly Twitter), says US inflation is higher than expected. This means the US might delay cutting interest rates until closer to the US Presidential elections if they do it at all.
US inflation is higher than expected. Postpones US rate cuts to later, closer to US Presidential elections, if at all. Brent oil now $90. Will keep rates higher for longer worldwide including India. Only wild card: China imploding economically. Get ready for global turbulence.
— Uday Kotak (@udaykotak) April 11, 2024
Brent oil is now at $90, which could keep rates higher for longer worldwide, including in India. The only unpredictable factor is China’s struggling economy, which could cause more turbulence globally. China’s economy has been having a tough time since COVID-19. A US rating agency, Fitch, has lowered China’s sovereign credit rating from stable to negative. They’re worried about increased risks to China’s public finances. This downgrade follows a similar move by Moody’s in December. Moody’s warned about China’s credit rating, mentioning the costs of helping local governments and state companies and managing its property crisis.
Uday Kotak on Global Economy
The US consumer price index (CPI) rose by 0.4% month-on-month (MoM) and 3.5% year-on-year (YoY), surpassing Street expectations of 0.3% MoM and 3.4% YoY. Core inflation, closely monitored by the Fed, grew by 0.4% MoM, exceeding the expected 0.3% increase and by 3.8% YoY compared to the projected 3.7% rise.
As a result, many experts now anticipate that there will be no Federal Reserve rate cuts in June due to persistent inflation and the resilience of the US economy. This development could have adverse implications for emerging markets, including India, as it might prompt a fresh outflow of foreign capital.
Inflation and Oil Prices Shake US Fed Rate Cut
Madhavi Arora, Lead Economist at Emkay Global Financial Services, says that the recent high inflation readings have surprised many, changing expectations for rate cuts in 2024. She believes the Federal Reserve won’t cut rates this year due to hotter inflation and steady but slowing growth.
Crude oil prices are rising because of worries about supply, especially with tensions rising in West Asia. Reuters reported that oil prices went up by $1 after three sons of a Hamas leader were killed in an Israeli airstrike in Gaza. This raised concerns about ceasefire talks. The increasing oil prices could make it harder for global central banks to control inflation. Also, experts think there could be more inflation risks as the global manufacturing cycle improves.
Experts warn that central banks struggle to balance economic growth and inflation. Investors now expect only two rate cuts this year, down from six expected earlier and three expected in March. If expectations for US Fed rate cuts continue to drop, global market sentiment could worsen.
June Rate Cut Unlikely, Says Bankrate Analyst
US stocks took a hit on Wednesday, with the Dow falling more than 500 points after the release of inflation data. The S&P 500 lost 1%, and the Nasdaq Composite fell by 1%.
Greg McBride, chief financial analyst for Bankrate, said a June interest rate cut is unlikely now. Tyler Schipper, an assistant professor at the University of St. Thomas, mentioned that while energy prices were expected to push the headline number up, the core inflation rate coming in higher than expected is disappointing.
Seema Shah Warns of Prolonged Inflation Trend
Seema Shah, chief global strategist at Principal Asset Management, noted that this is the third strong inflation reading in a row, indicating that the trend of increasing inflation can no longer be considered a blip. She also said that even if inflation cools down next month, the Federal Reserve might still be cautious about cutting rates in July, especially with the US election approaching.
Several Fed officials have expressed doubts about further lowering rates. Atlanta Fed President Raphael Bostic expects only one rate cut this year, possibly in the fourth quarter. Governor Michelle Bowman even suggested increasing rates might be necessary if the data doesn’t improve.
Also Read: Patanjali-Ramdev Misleading Ads Case: SC to Take Action, Know Key Points
Tesla to Entry into Indian EV Market in a ‘Natural Progression’, Says Elon Musk
