On Tuesday, the major US stock market indices – Dow Jones, NASDAQ, and S&P 500 – experienced a new decline. Consequently, the next round of upward correction has concluded, and US stock indices and stocks will rapidly decline. Recall that today in the afternoon, the most significant report on inflation in the United States will be released, upon which the fate of the euro and the pound, the fate of the stock market, and the Fed's future actions will depend substantially. According to the projections of industry experts, inflation will increase from 8.6% to 8.8% annually in June. If this forecast comes true, the likelihood that the Fed will tighten monetary policy at its next meeting will increase by 0.75 percentage points, bringing the likelihood to nearly 100 percent. Any stronger inflationary acceleration is equivalent. If inflation begins to decline, we can anticipate a rate hike of 0.5 percentage points, but only if it declines significantly and not merely nominally.
At the same time, Rafael Bostic, chairman of the Federal Reserve Bank of Atlanta, delivered a speech. He reassured the markets that the current level of the key rate does not "slow the economy down." The economy can still expand at a rate of 1.75%, albeit at a slightly slower rate than at zero percent. Bostic also noted that the 3-percent rate level is neutral, meaning it does not cause an economic slowdown or expansion. Friday's report on the labor market was positive, and unemployment was low; he does not yet see signs of a recession. Moreover, according to Bostic, a recession may be avoided, as the American economy is robust and can grow even under higher interest rates. The head of the Federal Reserve Bank of Atlanta also noted that there has not been a single significant and dramatic change in the economy over the past month, so "it does not appear to be the start of a recession."
The markets can only hope that Bostic is correct, but we would like to remind you that a year ago, Jerome Powell proclaimed everywhere that high inflation is temporary. Everyone following this indicator can judge how "temporary" it is. We continue to believe that restoring inflation to 2% will not be an easy task. Even if the inflation rate remains unchanged at 1.75 percent, it is highly unlikely that it will return to 2 percent at a rate of 3 percent. In any case, it will take much longer than 5-6 months. Consequently, 2022 will be the year of record inflation. And if the geopolitical conflict in Europe continues to escalate, it could lead to a new acceleration in global price growth.
