Major US stock market indices such as DOW Jones, NASDAQ and S&P 500 fell slightly on Wednesday. In our view, the main move could resume as early as the next few days. All three indices have corrected upwards quite well as part of the downward correction. So, it can now move to the South. Generally speaking, there is no new information on the fundamental analysis. The Fed's tightening of monetary policy in the coming years is still the main pressure factor on the US stock market. This includes both a rate hike and the QT policy (quantitative tightening). Thus, it is the fact of monetary tightening that will continue to cause risk assets, cryptocurrencies, equities and indices to decline. We believe that this is unavoidable. Consequently, we should not expect the situation to change and the market will suddenly start buying US equities on a massive scale. There will be upward corrections, but right now they are all in a downtrend.
Meanwhile, St Louis Fed President James Bullard, the most outspoken policy hawk on the Fed's monetary policy committee, has made a series of new statements that reflect his tough stance. He noted that the current US economic situation and high inflation were undermining public confidence in the Fed. Bullard believes that inflation risks and inflation itself could get out of control of the Fed and become unpredictable. This could happen if the regulator does not take clear steps in the direction of lowering the rate of price increases. Bullard says that the Fed should not take a passive or neutral stance, it has to show that it can cope with the challenges posed by the external economic situation.
There were no further aggressive comments from Bullard. He also said that he hoped to see inflation around 2% very soon and looked forward to the easing of external factors that were pushing inflation upwards. Thus, even the most hawkish Fed official is counting on weakening external factors. This suggests that these factors are very strong and out of the Fed's control. Therefore, inflation is not entirely dependent on rate hikes by the US regulator and the QT policy. In that case, attempts to get inflation back to 2% may be unsuccessful. No one expected US inflation to rise to 8-9%. Meanwhile, it is still growing! One 0.2% year-on-year slowdown is clearly not a trend. Personally, we expect that inflation could fall to 4% due to a strong key rate hike. However, the Fed cannot raise interest rates indefinitely either as this would put a lot of pressure on the US economy.
