Fed’s resolve: Inflation @ 2%

Federal Reserve has reiterated its commitment to bring the decades high US inflation back to 2% range. Ongoing relentless rate hikes in Fed funds rate and quantitative tightening provide enough practical evidence for the same. However, by doing so the Fed is dancing on the thin ice as global equity and bond markets are feeling the heat. Base line is that equity and other risk assets continue to slide and bond yields continue to surge ever since the ongoing rate hike cycle started. Our deduction from the most recent FOMC meeting is that Fed will continue to do the rate hikes unless something breaks in financial markets and/or inflation shows clear signs of heading towards 2% proximity. As a consequence, the chances of a US recession in 2023 are escalating.

Its worth mentioning that only Indian equity benchmarks Nifty 50 and Sensex are able to outperform the global markets even with strongest dollar (USD) strength in 2 decades and subsequent rupee (INR) depreciation. It will be interesting to know how long could the trend continue and to what degree would Indian markets be able to insulate themselves from global chaos.

Last updated on December 8th, 2022 at 10:18 am