Time goes by so fast and so much changes at that speed! Look, for example, at the FED meeting about a year ago, the FED gave the first statement of the cash tightening for 2022. Even though he kept the interest rates constant, he gave the signal that as of the first quarter of 2022, the cash tightening would accelerate and even interest rate hikes might be on the agenda.
At that time, the market was discussing when the Fed would start raising interest rates.
In this one year, we have seen the sharp increase in US inflation. As a reaction to this, the Fed’s interest rate increases much higher than expected compared to that period. There is another Fed meeting this week and the market is confident that rate hikes will continue. At the moment, the main question is how much the FED will take into account the slowdown in the US economy until the end of the year.
The FED, on the other hand, gives very clear messages about inflation.
It is expected to continue to increase interest rates by 75 basis points at the last meetings this week. However, with the latest information, the question of whether a measure of slowdown in core inflation has begun has also come to the fore. Therefore, although there was a 75 basis point interest rate increase in line with market expectations at this meeting, the expectation for a slowdown in the real rate of increase in interest rates by the end of the year is also getting stronger.
The general expectation is 75 basis points increase this week, 50 basis points increase in December and 25 basis points each in February and March. However, throughout this process, our eyes and ears will be on inflation in the USA.
Currently, the most valuable risk is seen on the power and nutrition side. In particular, Russia’s announcement that it suspended the grain agreement at the weekend brought a new increase in global food prices to the agenda. Again, we know that OPEC has a high tendency to cut the supply in order to keep oil prices high. The demand for natural gas, which will increase with the entry of the winter months, and the sanctions against Russia again appear as another risk factor on power prices.
It is inevitable that possible price increases in these two areas will also have an impact on US inflation. At that point, the fact that inflation in the USA is higher than expected may mean a new shock in all markets.
On the other hand, a scenario in which the relative impact of these risks is low may pave the way for a significant upward movement in all asset markets. The creation of an environment that may cause the FED to slow down the interest rate hike process, especially in the stock and crypto-asset markets, may bring opportunities for investors in these markets.
The US Federal Reserve, which has been using its interest rate weapon against inflation for the last seven months, will be decisive for all markets.
However, it is useful to mention this here.
As I said at the beginning, time passes very quickly and the adaptability of the markets is well developed. When we refresh our memory and go back a little further, the main path we see is that the US Federal Reserve will not be indifferent to a calm that will be experienced in the economy sooner or later.
In other words, there is no guarantee that we will not encounter a wave of financial expansion in completely different conditions six months from now!
As you can see, the eyes of the whole world are on the US Federal Reserve.
FED, on the other hand, has turned its focus to US inflation!
The news from there will be decisive for both the markets and the developing countries including Turkey!