According to Kyle Szostak, director of US investment company Navigator Principal Investors, the Fed's action is triggering a recession. Aggressive interest rate hikes as well as miscalculations regarding inflation estimates in the United States increase the risk of a prolonged downturn in economic activity, the expert believes.
Given two consecutive quarters of negative growth, Szostak argues that the US economy is already experiencing a recession. In his view, this can be attributed to record inflation, a sharp rise in energy prices, and supply-chain bottlenecks.
The Fed's steps could deepen a sell-off in global investment and bond markets as well as weaken the national currencies of emerging economies, the head of Navigator Principal Investors assumes. He believes that the US regulator made a double mistake. Firstly, it failed to properly assess inflationary risks and refused to adjust interest rates. Secondly, its rate hikes were chaotic and inefficient.
Furthermore, the Fed’s current monetary policy had an adverse impact on the US equity market. US government bonds retreated and traded at the level of emerging market bonds, with yields shedding $57 trillion in the 2022 market rout.
As a result, the central bank’s efforts to tame inflation with the help of short-sighted policy decisions led to a loss of confidence among investors, Szostak noted.
Notably, on September 21, the US regulator raised its benchmark interest rate by 75 basis points to a range of 3% to 3.25%, the highest level since 2008. In addition, the Fed intends to continue reducing its balance sheet and delivering rate increases as necessary.
