While inflation is showing signs of peaking, it is not falling as fast as the Federal Reserve would like which means more monetary tightening may be necessary. The central bank increased interest rates by an expected quarter of a percentage point on 3 May and further rate rises cannot be ruled out.

There was more bad news for the Fed on 5 May after April’s jobs report came in stronger than expected with stickier wage growth and falling unemployment. The latest reading doesn’t make the Fed’s inflation fight any easier.

Higher interest rates are already having unintended consequences for US regional banks. Customer deposits are shrinking as customers move their cash into higher paying money market funds, putting banks’ balance sheets under pressure.

The US regional banking sector index has lost 43% of its value since early March. Regional banks serve small and medium-sized businesses which are the lifeblood of the economy. A retraction of credit and lending could have a significant dampening impact on the growth of the economy.

Markets are pricing in one more interest rate hike in the US followed by interest rate cuts later in the year, a view the Fed does not share. This disconnect between markets and the Fed is contributing to higher volatility across asset prices.

Brent oil prices have fallen around 18% over the last month despite oil producers’ cartel OPEC+ announcing significant production cuts at the beginning of April. Worries that a global economic slowdown will lead to falling energy demand seems to have trumped tighter near-term supply-demand dynamics implied by the production cuts.

Prospects for further production cuts at the June OPEC+ meeting led to a price rebound on 5 May with Brent Crude up 4% to $75.30 per barrel, yet the rally has since lost momentum.

US banking woes and stickier than expected inflation have given a big boost to the price of gold and bitcoin as investors seek ‘safe-haven’ assets. Gold is up around 24% since October 2022 to $2,026 per ounce while bitcoin is up 66% year-to-date and breached $29,000 in early May. US sovereign debt default worries are also helping these supposed ‘safe-haven’ assets.

Treasury secretary Janet Yellen warned Congress on 1 May that the US government could run out of cash as early as 1 June unless an agreement can be reached to raise the nation’s debt limit from its current ceiling of $31.4 trillion. A protracted stand-off between the Biden administration and Republicans has raised fears the US could heading for an historical default.

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