Two new possibilities in the global inflation fight came into sharper focus this week. First, there’s talk the European Central Bank may attempt something rather bold: An interest-rate cut in Juneeven if the US holds fast. “It’s time to diverge,” Bank of Greece Governor Yannis Stournaras said. “The situations in the euro area and the US arecompletely different.” The other possibility? Brace yourself, Wall Street. If US inflation remains sticky, the Federal Reserve might do more than simply push backrate cuts. How about another rate hike? It’s not impossible: Robust consumption and investment as well as easing supply-chain problems have fueled strong US growth despite higher interest rates. Over in the world’s second largest economy, there’s a much grimmer economic landscape. Deflationary pressures are still a key threatto China’s stalled recovery. Globally, the International Monetary Fundpredictsgrowth this decade will be only “marginally stronger” if inflation and debt challenges aren’t addressed. Escalating geopolitical tensions—especially Russia’s widening onslaught against Ukraine’sinfrastructure and Kyiv’sattacks on Russia’s oil refineries, as well as risk of a regional war in the Middle East—specificallyIranian retaliationagainst Israel for the attack on its Syrian embassy—have spurred bullish activityin the oil options market.
