By Johnny Accary – Ph.D Student in Economy
To fight inflation, the Fed has aggressively lifted interest rates at a pace unseen since the early 1980s.
For that, the next Fed meeting, due on Wednesday March 22 and the investors were anticipating a major IR hike as per 50 bps, as Chairman Powel said on his last speech. But these raises have affected the Bank sector as we saw a collapse in Silicon Valley Bank in USA.
Now, the Fed will think twice before he takes the decision of the next because if he will raise the IR by 50 bps and especially after a negative CPI, PPI and Retail sales, signs of cooling inflation but also signs of fear and recession. On the other hand, we might see a big collapse in the US banking sector and the situation will get worst and the probability of a raise of 50 bps is now less than 5%.
So, the Fed might stop raising Interest Rate now or he will raise 25 bps (50% probability for each scenario): a none raise scenario might lift the inflation high in the future and a raise of 25 bps might affect the banking sector.
The US is paying too much to fight the high inflation and sooner or later the Economy will go into recession especially if the Fed will aggressively keep raising the Interest Rate in the near future.
