Global Markets Brace for July Fed Rate Rise as Core Inflation Stays Firm

Investors moved to price in a higher chance of a Federal Reserve interest-rate increase this month as the June consumer-price index was released and new Federal Reserve chair Kevin Warsh prepared his semiannual report to Congress. CoinDesk reported that traders raised their bets on a July increase, with the combined odds of a September move rising toward two-thirds on the Chicago Mercantile Exchange's FedWatch tool. Headline inflation eased as gasoline prices fell, but core inflation, which excludes food and energy, stayed elevated.

The expectation of tighter policy is pressuring risk assets. In Mumbai, the Economic Times reported that the Sensex fell about 500 points and the Nifty slipped below 24,100, pressured by rising oil prices and the prospect of a stronger dollar. In Tel Aviv, Lior Vaks, a fund manager at Infinity Portfolio Management, told Globes that valuations of United States chip stocks and private firms such as SpaceX had become inflated, and he urged caution on what he called "dream companies."

From the perspective of Austrian, sound-money economics, the episode exposes the gap between policy interest rates and the actual level of prices. Years of credit expansion have left inflation persistently above target. A central bank now forced to consider raising rates into an energy shock driven by war risks exposing the poor investments that cheap money financed (what Austrian economists call malinvestment). A rate increase would confirm that the decline in inflation seen in prior quarters has stalled.