The federal reserve did hike the interest rate by 75 basis points(bps) yesterday. Along with it, there was mention of only 50 bps increases hereon. But the most important thing was that the committee estimates the first cut to be in 2024.
This is distant and things will most probably get worst before that situation is reached even though swap rates estimate it in late 2023. But the dot plot over the quarters is getting more in sync with the swap market rate.
The risk and important factor that would create volatility is inflation but also job data will be a critical factor. In recent times there has been a flood of job cuts announcements across sectors. This would start contributing majorly in the August or September release.
The scenario that most governments and central banks dread is high inflation and bad job data with negative GDP growth. This would lead to much-feared depression and the only way to get out of it will be printing money with no limits as rates will be secondary options.
These nightmares have resulted in the Swiss National Bank doing a surprise rate hike after 2007. This brings a lot of worry to investors as it is one of the biggest investment countries. There is another country that most investors are looking and some even betting against its easy monetary policy in Japan.
These two nations control a lot of USD funding and investment any changes in flows that originate from them will impact the financial world in large proportions as the liquidity is already low.
All these instances occurring within the same year would bring haunting memories of various periods of historical crisis together but for the few that have hoarded cash amounting to $2.2 trillion in the reverse repo, it would bring again a money-making opportunity.