Fidelity: The future is in the hands of the Fed
As we approach the year 2023, the world economy faces a combination of challenges, from persistently high inflation and aggressive global policy tightening (led by the Federal Reserve), to the ongoing consequences of the Russian-Ukrainian war and the energy crisis, to weak consumer confidence. and political disturbances, so in its basic scenario, Fidelity always expects a hard landing. In the last quarter of 2022, their self-developed trackers measuring market activity indicated a continuous slowdown, moreover, a recession is likely in the USA and almost certain in Europe and the United Kingdom.
It seems that in the United States, the Fed intends to raise interest rates significantly above the neutral level in order to curb inflation. Fidelity does not expect a turnaround until there is a significant deterioration in hard data, particularly inflation and the labor market. The US housing market is already showing signs of tension, as higher mortgage interest rates and reduced purchasing power of buyers are stifling market activity. However, inflation and the labor market are still strong, prompting the Fed to continue, especially since it underestimated the importance of inflationary pressures last year, so it is now focusing more on current spot data. In this situation, one of the most important concerns of Fidelity experts is that the Fed pays too much attention to retrospective data, especially regarding the labor market, even though by the time it shows signs of weakness, it may already be too late for the American economy.
Real interest rates have been positive for some time and are approaching pre-Global Financial Crisis (GFC) levels in some parts of the yield curve. We have repeatedly said that the financial system (due to the high debt stock) cannot tolerate positive real interest rates for a longer period of time, because this may endanger financial stability. With liquidity and assets already under significant pressure, the system may begin to crack. There is a danger that if the Fed follows through on what it is now promising and doesn’t stop until inflation returns to close to 2%, something worse could turn out of a “normal” recession.
Related news
In September, the economic index of the GKI decreased slightly
With the arrival of autumn, the population and businesses also…
Read more >OECD: world economic growth will slow down next year
The growth rate of the world economy will slow down…
Read more >Slovakian Minister of Agriculture: the Ukrainian complaint has no legal basis, Slovakia will not lift restrictions on grain imports
Due to the maintenance of restrictions on the import of…
Read more >Related news
The HoReCa Heroes 2023 awards were presented
On 25 September the HoReCa Heroes Awards were presented to…
Read more >The government is extending the mandatory promotion until the end of December
The cabinet first postponed this deadline until June 30, then…
Read more >The European Commission limits added microplastics
On Monday, the European Commission adopted stricter measures aimed at…
Read more >