Inflation remains firm in the United States according to the latest data for September, despite the increases in interest rates by the Federal Reserve to control it, news that hits the president of that country, Joe Biden, ahead of the midterm elections. mandate.
|US interest rates will hit 9% if inflation persists, according to Mark Mobius|
Prices increased 8.2% in 12 months to September, according to the CPI consumer price index published last Thursday, October 13, by the Department of Labor . The figure shows a very slight moderation compared to 8.3% last month, but is above the 8.1% that analysts expected.
The report was enough for Wall Street to go red fire: the Dow Jones index lost 0.62%, to 29,031.69 points; the technological Nasdaq, 1.8%, to 10,228 units, and the S%P 500, 1.06%, to 3,540 points, one hour after opening.
“If inflation is 8%, the playbook says you should raise rates above inflation, which means 9%,” the Mobius Capital Partners co-founder told Bloomberg TV on Monday.
While policymakers may not hike as aggressively if consumer prices soften, the investor said he doesn’t see inflation receding "anytime soon."
On the other hand, the forecast is likely to be a reference to the Taylor Rule, a model that suggests an optimal policy rate by weighing price and labor market pressures.
Indeed, the Fed is under pressure to manage the highest inflation in 40 years, after last week’s September consumer price reading beat expectations. Other inflation readings have also remained elevated despite recent rate hikes from the Federal Reserve.
However, the Mobius warning goes far beyond what the Fed, and rate markets, now anticipate. Fed funds futures traders are pricing in the rate peaking near 5% in March of next year.
Market-derived expectations for the one-year inflation outlook have tumbled from a high of 6% in March to 3.2%, while the Bloomberg Commodity Index has tumbled from a high in June, thanks to to a slowdown in global economic growth.
Mobius, meanwhile, also warned investors to watch out for commodities as demand from some key buyers could cool.
“People who buy commodities are sitting on ever weaker currencies. You will probably see a drop in commodity prices,” the veteran said, referring to buyers from emerging markets and the euro zone.
Mobius, well known for its emerging market investments, said it is putting money to work in India, Taiwan, Brazil, “a little bit in Turkey, and also in Vietnam.” The 86-year-old insists on being very cautious around companies with high debt-to-equity ratios and those with low returns on equity.
“These are the two parameters that are very, very crucial today because of this issue with currencies and high inflation,” he concluded.