Markets fall, Fed “really going to have to lift its policy rate”

Markets fell on Wednesday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 plunged 1.5 percent and the Nikkei 225 fell 1.3 percent.

US stocks did manage to recover most of the sharp falls suffered early in the session, when they were weighed down initially by a sudden plunge in cryptocurrencies and later by the minutes of the last Federal Reserve monetary policy meeting that said that “if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases”.

In Europe, a report from the UK showed that consumer prices rose by 1.5 percent in April, more than double the 0.7 percent rise in March.

Melanie Baker, senior economist at Royal London Asset Management, said that “as the economy reopens, it seems likely that we will see some further price increases and inflation is likely to end the year higher”.

Indeed, some economists think that fresh waves of COVID-19 cases in major manufacturing hubs in Asia could hit global supply chains and could cause inflation to rise quicker.

“I think by the end of this year, the Fed is really going to have to lift its policy rate,” said Richard Martin, managing director of IMA Asia.