On Friday, Wall Street closed substantially higher as hints of peaked inflation and consumer resilience boosted investor confidence that the Federal Reserve will be able to tighten monetary policy without pushing the economy into recession.
The S&P 500 gained 2.47 percent to 4,158.24 and the Nasdaq Composite added 3.33 percent to 12,131.13.
The focus has moved away from fears around inflation to growth concerns and recession fears and consequently, a ‘Fed pause’ – which means that the Federal Reserve will be able to tighten monetary policy in various ways less aggressively. However, it's not a pause in rate hikes - the next two rate hikes will perhaps take place but what after that?
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Even though the Fed is just getting started in the cycle, with the data sharply slowing down, it may start to look at all of this less aggressively.
Look at the market pricing of what the Fed will do by the end of 2023 - it is down 40 basis points (bps) from the late April peak.
The dollar correction is something to watch out for - it nursed last week's losses on Monday and was headed for its first monthly drop in five months as investors have scaled back bets that rising US rates will spur further gains. The dollar index is down almost 3 percent or so.
Watch the accompanying video of CNBC-TV18’s Prashant Nair for more details.
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