What policy will the FED adopt?
This week we have a lot of macroeconomic publications, including those from the largest economy in the world: the United States of America.
On Tuesday, the CPI inflation from the USA. On Wednesday, the FOMC decision, followed by a press conference by Jerome Powell (Chairman of the Federal Reserve of the United States).
What can we expect, then? What will the Federal Reserve of the USA do? What policy will it adopt?
I believe we are walking within the "narrow channel"
between: 🌉
🔸 EXPERIMENTAL STRATEGY of attempting a "soft landing"
Consistently and slowly reducing inflation, which in a negative scenario may extend the period of high interest rates for so long that many businesses - accustomed to cheap money - simply won't withstand it.
🔸 ...,and a TIME-DELAYED RECESSION and, often associated with it, investor panic. - because, for example, the period of "trying for a soft landing" may not yield results, so ultimately drastic steps in Fed policy will still be necessary.
So, both scenarios, reaching their extremes ➡️ will trigger a recession. 💸
🔸There is yet a third way ➡️ THE JOURNEY THROUGH THE MIDDLE OF THE CHANNEL WILL SUCCEED, and we will have the first successful "soft landing" in the history of the Fed. 🛬
What will the markets do, which are already pricing the scenario, in which the most violent tightening of monetary policy in over 4️ decades this time will not cause a recession – so the "soft landing" will succeed?
Is it really (quoting the classic):
"This time it's different"? - Sir John Templeton -
or maybe this time it will be "business as usual"? 😲🍿
Jacek Pobłocki
Financial Analyst of Markets and Securities
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