Last week, we received data on economic growth and core consumption expenditures from the US. This week, the US Federal Reserve is heading towards the highest interest rate in 16 years. Federal Reserve officials will announce the outcome of their FOMC meeting this week, tomorrow.
The United States entered a cycle of high inflation as a result of the economic decisions it took during the pandemic period. For exactly a year, they have taken the decision of tight monetary policy to combat the highest inflation of recent times. Continuing the fastest tightening policy since the 1980s, the USA will announce critical data such as interest rate decision and private sector employment tomorrow. Concerns about the rapid rate hike cycle continue in the markets.
In addition to high inflation and interest rates, the effects of the bankruptcy of two big banks in March continue. The drop in First Republic Bank shares last week caused concern. It was announced on Sunday that JP Morgan Chase bought the bankrupt bank. Under the influence of all these news, the recession discourses that have been spoken for a while began to be spoken more. The members, who used the word ‘recession’ for the first time in the previous FOMC minutes, argue that a mild recession may be experienced towards the end of the year.
Regarding the decision to be announced tomorrow, the market expectation is for an increase of 25 basis points above 90 percent. In fact, an increase at the same rate is among the expectations, not only in this meeting, but also in the meeting on 14 June. It is thought that the Fed, which started a year ago and has an inflation target of 2 percent, will raise interest rates for the 10th time tomorrow.
The press conference to be held by Fed Chairman Jerome Powell and Fed Members is also of great importance. The absence of a clear sign of the final increase in tomorrow’s speech will drag the markets into selling pressure. Failure to meet the long-awaited stagnation and slowdown expectations will continue to put pressure on risky assets. Circumstances such as the weekend bankruptcy of First Republic Bank, the third largest bankruptcy, will not prevent the rate hike coming tomorrow.
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