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The main US stock indices – the DOW Jones, NASDAQ, and S&P 500 – edged lower on Monday. With indices hovering around their yearly lows, stock market swings have been taking place. So, it is not about an upward correction but about a simple rebound after which quotes are likely to continue falling. Many experts see the US stock market continue to be bearish. Last week, some FOMC members delivered speeches. Some of their interviews were indeed interesting. Thus, the Fed's James Bullard said the interest rate should rise to 4% by the end of the year. Earlier, he backed a 3.5% rate hike. Most FOMC members used to believe that the interest rate should be gradually lifted to this level by the middle of 2023. However, Bullard has repeatedly stated that the rate should be raised to the highest level as soon as possible. It would allow the regulator to lower the rate the following year when inflation slows down steeply. So far, Bullard has been accurate in his forecasts and conclusions.
We have already addressed the fact that a 3.5% interest rate will hardly be enough to ease inflation to at least 4%. We see that consumer prices are still on the rise despite a 1.75% rate increase. So, the central bank's measures have so far been ineffective. Consequently, a more aggressive approach is needed, for example, a 1.00% rate hike at the July meeting. Right now, such a scenario has a 25% probability. Other FOMC members who spoke last week advocate for a 0.75% rate increase. It remains to be seen how the Committee votes. Many FOMC officials say the primary focus should be on inflation reports, which means that the Fed might go ahead with Bullard's plan to raise the rate to 4% if inflation keeps soaring. Consequently, monetary tightening would become even more aggressive. This, in turn, would be driving the dollar further up for as long as the regulator would be lifting the interest rate. Meanwhile, the US stock market and the crypto market would be bearish.
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