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The Influence Of U.S. Inflation To The Global Economy


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As the world’s largest economy, inflations in the U.S. would usually cause rippling effects to its peers. The most common, being rising energy and food costs; squeezing household budgets in emerging economies in the process.

To curb inflation, the Federal Reserve commonly resorts to impose higher interest rates. However, these raised interest rates would then influence other countries, causing turmoil in the economy. The rise in prices would then balloon the size of debt payments and increase the risk of recession.

Bank Of Canada Reports Highest Hike Rates In 22 Years

The Bank of Canada has hiked its rates overnight to a staggering 22-year high of 4.75% while analysts have almost instantaneously forecasted of a subsequent increase by the following month in hopes to ratchet down an overheating economy and stubbornly high inflation.

Source: REUTERS

The central bank was placed on hold since January as it assesses the impact of previous hikes after raising borrowing costs eight times since March 2022 to a 15-year high of 4.50% – the fastest tightening cycle in the bank’s history.

The S&P 500 And Nasdaq Closing In Negative Territory

A large number of investors have taken profits after a month-long megacap stocks run, ahead of key economic and policy events next week. The small-cap index Russell 2000 (.RUT) climbed by 1.78% as investors moved away from megagap and growth stocks after strong gains.

Source: Business Today

Investment firm SS&C ALPS Advisors chief ETF strategist, Paul Baiocchi stated, “Over the past week, we’ve seen a pretty dramatic outperformance of small caps relative to large caps. We’re seeing that persist here today.”

U.S. Trade Deficit Expected To Hinder Economic Growth

The U.S. trade deficit widened the most in eight years in April as imports of goods rebounded while exports of energy products declined. Concerns arise as trade drags could stunt economic growth in the second quarter.

Source: REUTERS

The Commerce Department has reported that this was the biggest trade deficit since April 2015 and has elevated the trade gap to the highest level in six months. Economists are expecting that the trade could lead to a 2.5 percentage point loss from its gross domestic product this quarter.

Fears brew as a strong dollar paired with decreasing global demands could obstruct exports.

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