In my previous articles, I have already said that the problem of high inflation is not only a problem that has to be solved here and now. This is a problem that has been present in the lives of many states for many years. Remember that at the beginning of the year, we repeatedly heard from representatives of the ECB and the Fed that inflation would not grow forever. The boom in demand after lifting quarantine restrictions and the completion of stimulus programs will pass, and the market balance will recover. Nine months of 2022 have passed, and it has become clear that nothing like this has happened. Inflation continues to rise, despite the world's largest central banks raising their interest rates quickly and strongly.
The Fed is the first place in this indicator to have already raised its rate to 3-3.25%. Inflation at the same time slowed from 9.1% to 8.3%. Thus, by simple mathematical calculations, it turns out that even an increase in the rate to 4.5% may not be enough for inflation to fall even to 4-5%. Of course, there is no direct relationship between these indicators. It cannot be said that inflation will decrease by 1% with an increase of 3%. But it is also impossible to say that inflation will begin to fall more quickly after reaching a certain level. By and large, the Fed, like other central banks, is now moving blindly. Of course, inflation will slow down as monetary policy tightens, and the Fed has its calculations and forecasts. But no one knows exactly how inflationary changes will occur and at what speed.
The Fed minutes were released the night before, which showed that absolutely all 12 members of the committee voted at the last meeting for a 75 basis point rate increase. Most officials are not satisfied with the current rate of inflation reduction and believe that the rate should continue to be raised until the rate of price growth reduction becomes high. From my point of view, this is an open statement that the rate will rise by 75 points again at the next meeting. It is unclear how many more such promotions will be required. But it is clear that each subsequent rate increase, even by 25 points, will pressure the US economy.
The threshold of the "neutral" rate has already been passed. It is just around 3%, and if the rate exceeds this mark, each subsequent increase will slow down the economy. Of course, no one can say how quickly the economy will slow down, but the recession in the US has already formally begun since the last two quarters were negative in GDP. The IMF and other major analytical organizations do not yet see the threat of a recession in the long term. The GDP is expected to grow at a minimum in the current and next two years. However, let me remind you once again that, at the beginning of the year, it was not expected that inflation would rise to double-digit values and that it would take several years to fight it.
Based on the analysis, I conclude that the construction of the downward trend section continues but can end at any time. At this time, the instrument can complete the descending wave and start building an upward impulse wave since the British can also do this. But at the same time, the downward section of the trend may continue to build. From a wave point of view, the situation is confusing.
