As we have already said, the US stock market continues its powerful decline, which is a correction against the previous upward trend. This week, several speeches by Fed representatives took place at once, each of which confirmed that the regulator would continue to raise the rate and reduce the balance sheet, as planned. In particular, the head of the Federal Reserve Bank of Chicago, Charles Evans, spoke yesterday. He said that in 2023, inflation may fall below 3%, and the short-term level of the neutral rate may be higher than the long-term one. In other words, the Fed continues to believe that within one and a half to two years they will be able to return inflation to "human" values, and to fulfill this task, they will have to raise the rate above 2.5%. From our point of view, this is too optimistic a forecast. Along with the Bank of England's forecast of 5.5% inflation in 2022 and Jerome Powell's statements at the end of 2021 that high inflation is a "temporary phenomenon". Even then there were big questions about this "temporality". As it turned out a few months later, "temporary" in Powell's understanding - it may well be several years. Mr. Evans also noted that if inflation does not react to tight monetary policy, the Fed will take other measures to reduce inflation. He also stated that the current and planned rate hikes are "ahead of schedule."
As we have already said, the QT program is also an extremely important tool of monetary policy. So far, the Fed has planned to reduce the balance sheet by $ 95 billion per month, starting on July 1. However, Fed members are already saying that there will be no "return to the original balance". Most likely, this means that the regulator does not plan to reduce the balance to pre-pandemic levels, that is, up to 4-5 trillion dollars. At the moment, it is almost 9 trillion. Nevertheless, any significant reduction in the balance sheet will lead to a decrease in the money supply in the American economy. This means that money will become trite less, which should at least slightly extinguish the price increase. But do not forget about external factors that do not depend on the US or the will of the Fed. The situation in China with the "coronavirus" is beginning to improve, but it will take a long time to restore the logistics chains that have suffered greatly over the past 2 years of the pandemic. The military conflict in Ukraine has been promising to spill over for several weeks in a row, and a new escalation of the confrontation between the West and the Russian Federation will inevitably result in new problems for the world economy. Investors will continue to look for the safest assets and avoid stocks and cryptocurrencies. Therefore, the worse the geopolitics, the higher the probability that the US stock market will continue to fall.
