Is this the only move for the Fed when it comes to interest rates?
Unfortunately for investors looking for short-term relief, economist Alex Krügerthat “The Fed will not stop tightening unless markets break or inflation drops considerably and for *many* months.” One of the main issues affecting the psyche of traders is the fact that the Fed has yet to outline what inflation would need to look like for them to take their foot off the rate-hike gas pedal.
Instead, it simply reiterates its goal “'to see clear and convincing evidence inflation is coming down' towards its 2% target.” According to Krüger, the Fed will “need to see Y/Y [year-over-year] inflation drop 0.25%–0.33% on average every month until September” to meet its goal of bringing down inflation to the 4.3%–3.7% range by the end of the year. Should the Fed fail to meet its PCE inflation target by September, Krüger warned about the possibility that the Fed could initiate “more hikes *than what’s priced in*” and also begin exploring the sale of mortgage-backed securities as part of a quantitative tightening campaign.A setup for double-digit sustained inflation The Fed’s responsibility for the current market conditions was also touched on by billionaire investor and hedge fund manager Bill Ackman, who that “The only way to stop today’s raging inflation is with aggressive monetary tightening or with a collapse in the economy.”, the Fed’s slow response to inflation has significantly damaged its reputation, while its current policy and guidance “are setting us up for double-digit sustained inflation that can only be forestalled by a market collapse or a massive increase in rates.” Due to these factors, demand for exposure to stocks has been muted in 2022 — a fact evidenced by the recent decline in stock prices, especially in the tech sector. For example, the tech-heavy Nasdaq index is nowWith the cryptocurrency sector being highly tech-focused, it's not surprising that weakness in the tech sector has translated to weakness in the crypto market, a trend that could persist until there is some form of resolution to high inflation.
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