1. Inflation up, rates up, dollar up
The Facts:
- On Wednesday, the FED raised their benchmark interest rate by 75 basis points after their two-day Federal Open Market Committee (FOMC) meeting.
- With the recent hike, the rate is now ranging between 3%-3.25%.
- According to the Federal Reserve's median prediction given on Wednesday, the central bank will hike interest rates as high as 4.6% in 2023 before ceasing to combat the inflationary crisis.
- The jobless claims came in Thursday, increasing by 5’000 to 213’000 while continuing claims dropped by 22’000 to 1.379m.
- Interest rate hikes all over the world were due this week as the Norwegian national bank (2.25%), the Bank of England (2.25%), and Sweden’s Riksbank (1.75%) signaled aggressive tightening policy.
- Moreover, the Swiss National Bank is ending the negative rates era by raising 75 bps to 0.5%, not ruling out further hikes.
- As of the time of writing, the Euro slides to a new 20-year low ($0.98) while the pound drops to new lows not seen since 1985.
Why it’s important:
- With inflation running almost as hot as in the early 1980s, the FED is sticking to their tight monetary policy taking their benchmark interest rates as high as las seen in early 2008.
- As the dot plot indicates another 1.25% by EOY, a further 75 bps rate hiker might be ahead, with only two more policy meetings remaining in 2022.
- Fueled by the hawkish FED policy hiking rates aggressively, the relative strength of the U.S. economy and investors seeking a safe haven from heavy market conditions.
- As housing markets in China, the U.S. and the euro zone show first signs of weakness while inflation keeps surging globally, recession and even depression fears are growing stronger despite a resilient U.S. labor market.
- Russia’s announcement of mobilization and referendums in Luhansk, Donetsk, Kherson and Zaporizhzhia, provinces that are occupied by Russian troops, asking residents to vote for independence and then join Russia have raised fears even further.
