“To mitigate inflation, we might witness an economic downturn, market strain, and employment stress.” – Andrey Syrchin, CEO of Cresco Capital

Greetings,

This week brought about significant insights that I wish to share, accompanied by several conclusions:

1. The interest rate remained unchanged, standing at 5.25-5.5%.
2. The possibility of a rate hike this year is still on the table, especially if inflation doesn’t stabilize. This could potentially see rates surpassing 6%.
3. Pertinently, addressing inflation might necessitate an economic downturn, market turbulence, and employment challenges, hinting at potential unemployment and recession scenarios.
4. There remains significant uncertainty surrounding inflation indicators, the real estate market, and overall economic growth.
5. A rate reduction seems unlikely in the near future, not before the end of 2024 as per the regulator’s stance.

The Chairman’s statement provoked substantial reflection on the ongoing market situation.

Observations:

1. The market is expected to endure strict monetary policies, with expensive capital being the norm. While this is the anticipated trajectory, I have reservations. If, for instance, the market plunges by 30-40%, I believe prompt and decisive action would be necessitated. Historically, the Federal Reserve has often been late in making pivotal decisions, leading to significant market downturns, inflation spikes, and other challenges.
2. Until the Federal Reserve is confident that inflation is below 2%, no major interventions will be made. As the Chairman emphasized, a crisis and rising unemployment might be prerequisites to curb inflation. It’s challenging to quantify the current buffer in the US business sector, especially with the excess liquidity provided by high inflation and stimuli. The effects of high rates have not fully permeated the markets, yet already this year, over 90 bankruptcies and bond defaults have been observed in the US, a number that typically stands around 50 at this juncture.

In summary, this encapsulates my reflections on the Federal Reserve’s meeting. As we move forward, I advise exercising caution, emphasizing speculation over long-term investment.

Wishing everyone success.