American inflation is clinging to 3% and not letting go. That's the message just delivered by the main indicator tracked by the US Central Bank, released as the country tips into an unstable geopolitical context with rising tensions with Iran. 📊
🔍 What's going on?
The key inflation gauge used by the Fed has just shown that prices remain stuck at 3%. This figure is not moving, which means that the Central Bank's efforts to bring inflation back towards its 2% target are stalling. The timing is critical: this report arrived just as relations between Washington and Teheran are degenerating.
.For a trader, this is important: when inflation stagnates and geopolitical uncertainty rises, central banks find themselves in an uncomfortable position. They can't cut rates aggressively for fear of inflation taking off again, but they can't keep them too high either if economic growth starts to suffer.
For a trader, this is important: when inflation stagnates and geopolitical uncertainty rises, central banks find themselves in an uncomfortable position.
💡 Why does it matter?
This inflation figure tells you two things. First, that the Fed hasn't really made any progress in its battle against prices. Second, that geopolitics is complicating the monetary equation. If tensions escalate, they could affect supply, push prices higher, and force the Fed to remain restrictive longer than expected.
.For currencies, particularly the EUR/USD, this plays directly into the picture. A Fed stuck on inflation is a Fed that won't cut rates, which keeps the dollar attractive. On USD/JPY currently at 159.43, this rigidity of US inflation could support the US currency against more accommodative central banks elsewhere.
📊 Our opinion
We're bearish on rapid US monetary easing. This 3% inflation that refuses to give in, combined with geopolitical uncertainty, signals that the Fed will remain patient - perhaps too patient for the taste of those expecting rate cuts. The market will have to accept a Fed "on hold", which supports the dollar and limits appetite for risky assets. Tensions with Iran don't help to dispel this caution.
✅ To remember
- Inflation frozen at 3%: the Fed makes no progress on its target.
- Tensioned geopolitics: Iran uncertainty complicates the macroeconomic picture.
- Dollar supported: a patient Fed means a dollar that remains attractive.
What about you?Do you think the Fed should move despite inflation, or wait for the geopolitical context to clarify?
🔎 Also to be read
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