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Fed Policy - Pressing the Pause Button

The most crucial week for finance and the real world begins tomorrow as The Federal Reserve ( USA Central Bank) decides to raise the interest rate for the sixth time in the last eight months. Though it is one of the fastest rate increase in history, tomorrow is entering a critical phase as the world expects a reduction of hikes or even an indication of a pause soon.

Most of the financial world and even the interest rate swap markets are factoring reductions in the number of hikes from December with a paise in April. But in past, there have been similar expectations that have met with disappointment as the central bank remains determined to fight inflation that is stable at 8.5%.

Though it had been maintained that the rate hike will be data dependent but if the days remain strong due to the seasonality trend then post the trend ending the interest rates will be looking very high. This scenario will lead to higher unemployment and defaults that are already at the highest level since the pre-pandemic period.

All these factors, in theory, should result in a severe recession but will it bring down the inflation as the expectations of the central bank that is a crucial point to be seen.

So, if you see the market rise day after tomorrow be cautious before jumping on the sentiment train because the rest of the week involves crucial events such as the USA midterm election on November 8.

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