If the Federal Reserve meeting were to take place today, it is likely that the interest rates would remain unchanged due to the current uncertainty surrounding banks. However, the markets can change significantly within a week. If the upcoming weekend remains peaceful with no urgent need to rescue any banks, there is a high likelihood of a 25 basis points increase in the rates. The Federal Reserve continues to hike rates until it hits a roadblock. In case that obstacle is only Silicon Valley Bank (SVB), the persistently high inflation rates may lead to further hikes. This, in turn, would strengthen the US Dollar and eventually result in a decline in stocks once the initial relief rally wears off due to a lack of new bank failures.
Comment
⋅
Re-acceleration of inflation and its win over the Fed will continue to catch the market by surprise While always on the look out for signs that the overall demise and falling back into the global pack of the US economy will one day tip the US dollar into an historic re-pricing lower phase, that day may still be some time off. For the moment, and certainly this is already being seen in the price action, the US dollar may only be in the early stages of yet another tear higher. It is the resilience, indeed the re-acceleration of inflation and its win over the Fed at these rate levels, that is and will continue to catch the market by surprise.