Recently, most analysts and other investment channels are waiting for the Fed to finish raising the rate and move on to lowering it. Their logic is linear and understandable: High key rate -> expensive loans 🪓
And expensive loans are already serious: consumers have less money -> companies earn less -> companies save more -> lay off employees -> consumers have less money…. and then again around the circle. It is this process that is starting to unwind now and it is likely that it will last for the 1st and 2nd quarters 2023. In general, simply put, we are confidently entering a recession 🥵
You can get out of this “vicious circle” by lowering the rate, or simply printing money, as it was in 2020-2021 (but you need to forget about the “printing press” for at least half a year, since inflation has not dropped to the target target of 2%) . The Fed says that the rate will hold at high levels until the end of 2023 (in less than a couple of minutes you will realize that this is a fake 🎩) .
The global situation is deteriorating due to tightening financial conditions. As long as there is no new money and the key rate is at a high level, conditions will continue to deteriorate. 🤔 It is quite logical that the Fed should start cutting the rate now, so as not to aggravate the process. 🧐 It would also be more logical that in 2021 he would stop printing money in advance and would not accelerate inflation to such values, because inflation began to grow gradually. But Powell said that "it's okay guys, don't worry👌", well, yes ....
What is the problem? 😥
And the problem is, friends, that the US Central Bank is not a proactive body, but a late one. It relies not on forecasts, but solely on the output data, which, unfortunately, always reflect the past rather than the present. That is why in the end the Fed is forced to listen to the market, because it is more flexible.
Look at the attached picture 👀 A chart from 2000 shows that the market always falls when the Fed cuts rates. Why is that? Because the Fed is a lagging body, it raises rates until something goes wrong in the economy. So it was in 2000, in 2008, in 2020 and 2023 will not be an exception. But in conditions when everything is deteriorating so rapidly, keep the rate at a high level for a year ... well, it remains only to wish good luck 🍀
Only when something breaks does the Fed begin to actively reduce the rate in order to “save everyone” from their stupid actions. But as you can see from the chart, the market also falls at a falling rate, because cheap loans go not to the markets, but to heal wounds 🤕🩸 After that, the market “comes to its senses” for a few more months, and only then a new bullish cycle begins for many years.
Now you know who really controls the markets and what you should keep a close eye on :)
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