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The Fed - Not a Recession III

Yesterday federal reserve hiked the interest rate by another 0.75% taking the new rate to 2.5% and leaving only a gap of a maximum of 1% from its target rate of 3.5%.


This can be taken as the peak of the hiking cycle if everything remains constant. But current times have been the highest volatile period in decades and it has resulted in large inflation numbers that have not been reduced by any amount.


In addition to this chairman, Powell has emphasised that the USA is not in a recession. This is a follow-up to the admin and US Treasury Sect Yellen repeatedly emphasising the same. This is all in preparation for the release of GDP data on 29th July. To make sure the audience is ready for it there is a press conference by Sec. Yellen On 28th July.


So why is everyone at top of admin and financial roles pressing so hard on the narrative? It is important to read the data as it is rather than reading how you would like it to be.


The main reason that can be driving such a coordinated move is the elections and the dismissal of being in stagflation. If the narrative is not controlled then there would be even higher chances of a split in house and senate post-mid-term elections in November.


On stagflation, it has historically been observed that such a high level of inflation rate has only been reduced by hiking rates above the inflation rate or a large and severe recession. And either of these solutions being told before completely necessary will create an economic panic or depression.


Thus, it is better to avoid a narrative shock to the system. But this one looks more unavoidable and makes it more critical for postponing the acceptance.


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