As expected, Powell officially announced on Wednesday that the central bank is hiking its benchmark interest rate from near zero to a range of 0.25% to 0.5%... raising rates for the first time since 2018. With inflation high and unemployment low, the Fed also indicated that it wants to raise rates at each of its six remaining meetings this year, getting near 2% by the end of the year in order to "cool" the economy... That trimming of the balance sheet could count as another rate hike. Then, in 2023, Powell and company see three more rate hikes... and that's it.
Do you really believe Powell will be able to raise interest so many times? I DON'T BELIEVE SO AT ALL! Powell and the Fed is in a cannot-win position and there is no chance they can afford to raise interest as they'd like to. Yes, logically they need to with high flying inflation but don't forget another side of the equation: the unbearable government debt load. Any meaningful increase of interest will easily bankrupt the US government many times. This is just like a nuclear time-bomb. I even doubt they can further raise interest after the next one.
Let's see if I'm right on this.
For the time being, as I expected, just enjoy the market reflexive rally that may last for a couple of weeks with volatility of course. But don't think we are totally out of the woods just yet. This is still likely just a dead cat bounce. After it runs its course, it will back down again, probably more hardly. We will talk more about this next leg down when the time comes. For now, enjoy the happy music😇
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