The latest economic data showed that things were not actually going well in the U.S. as economic recovery was not happening everywhere in the country. And the growth figure revealed that the situation is even worse.
Those who have been expecting a 75 basis points rise since last month have become silent. Everyone agreed on a 50-basis point rise and that the next steps will be taken more carefully. After all, this tone was present in the statement by the Fed after the rate hike decision. “Additional 50 basis-point increases should be on the table for the next couple of meetings,” Powell said in his first in-person press conference.
The unpleasant course in stock and commodity exchanges is stemming from the expectation that the Fed will continue to hike rates, regardless of the growth data. “The sunny days are over” for some now. Honestly, it will be good for everyone if the Fed’s steps can help cut the investors’ appetite to enter the commodity markets because of low interest rates, which evidently causes inflation to rise further and further.
“According to Plan, Interest Rates Will Go Up While Inflation Declines But…”
Investors, who became extremely interested in all kinds of commodities due to near-zero interest rates and abundance of money, had been quite happy when the prices were increasing, however, given that the prices of all kinds of products we buy are determined in the markets, these investors also caused an unprecedented rise in inflation. Producer prices and raw material prices need to calm down already. As the Fed was preparing to do so by sacrificing growth, they are now demoralized by the latest data.
For this reason, it was not difficult to guess that the Federal Reserve would not change its 50-bps hike decision but agree that an increase by 75 bps would be unnecessary at this point. The tone of the Fed Chair’s statement was also quite appropriate. Apparently, the Fed has finally accepted the reality of inflation and the necessity of growth.
Everyone will suffer hardships under these circumstances. It is inevitable. But interestingly everyone also acts as if they are waiting for the storm to calm down by itself, obviously after taking all the necessary measures. As inflation goes down, interest rates will go up, eventually they will intersect, but when?