The key indices of the US stock market - Dow Jones, NASDAQ, and S&P 500 - ended Monday and Tuesday without major changes. That is, near its lows of 2022. The US stock market reacts more accurately to everything that happens in the world. Recall that over the past two weeks, some experts have begun to link the fall of the dollar and the growth of European currencies with the tightening of the ECB's rhetoric and the softening of the Fed's rhetoric. In particular, the head of the ECB Christine Lagarde began to talk about a rate hike this year, and some members of the Fed announced the need for a pause in tightening monetary policy this fall. For example, the day before yesterday, the head of the Federal Reserve Bank of Atlanta, Rafael Bostic, said that he supports two rate hikes of 0.5% this summer, but in the fall, he believes that a pause is needed to assess the impact of rate hikes on inflation. But the head of the St. Louis Fed, James Bullard, said yesterday that the Fed should continue its aggressive policy of raising the rate and bring it to 3.5% by the end of the year. From his point of view, such a step will lead to a decrease in inflation, and in 2023 and 2024, the Fed may already lower the key rate. Bullard believes that in the case of inflation, it is impossible to delay and it is better to play ahead of the curve. That is, first raise the rate as much as possible, and then, when inflation starts to slow down, slowly reduce it. Bullard also does not deny that he is ready to support a rate increase of 0.75%, and sees nothing surprising in the fall of the stock market. The head of the St. Louis Federal Reserve believes that the US economy is not in danger of a recession.
What conclusion can we draw from this information? The euro and the pound are growing, and the dollar is falling now because a technical correction has begun in the foreign exchange market. As you can see, the stock market is not growing, which would be logical if the Fed's rhetoric began to soften. However, it does not relent, and the talk of some of its members about a possible pause is just a cautious approach. The same Rafael Bostic has always taken a more cautious position than Bullard, so he simply does not want to promise a rate increase at every next meeting. But, as we can see, the Fed monetary committee still generally believes that rates will have to be raised to 3.5%. Quickly or slowly - this is the second question. Thus, nothing has changed for the US stock market, risky and safe assets, and currencies because of these speeches by Fed members and Christine Lagarde. We still believe that US stock indices and stocks will continue their downward trend in 2022. By the way, the minutes of the last Fed meeting will be published tonight, which is more important for the stock market than for the currency market. From this document, we can learn about the real sentiments of the members of the monetary committee.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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