The Fed puts the risk of a recession at stake in order to fight inflation

Jerome Powell, boss Federal Reserve, announced yesterday that the US central bank will do everything it can to fight the highest inflation in 40 years.

Federal Reserve members are ready to raise interest rates by more than 25 basis points at one time or even more meetings should the situation so require, President Powell said at the conference National Association for Business Economics in Washington. The Fed chairman reiterated that the reduction of the huge Fed balance sheet may also begin soon.

Interest rate hikes by up to 50 basis points

Let us recall that at the meeting in March the Fed raised the target federal funds rate by a quarter point to 0,25-0,5% for the first time in three years. Currently, the Fed expects a rate hike at each of the six remaining meetings this year, and the fed funds rate should reach 1,9%. by the end of the year - according to the Fed's projection.

Powell added that the Federal Reserve will raise interest rates also if it entails a reduction in economic growth and employment, and when necessary to slow down rampant inflation. To achieve its goal and combat price dynamics, the Fed may deliberately push the economy into a phase of slowdown, stagflation or recession.

Goldman Sachs assumes that Fed to raise interest rates 50 basis points in May and Juneand then it will raise rates four times by 25 points by the end of 2022. This would mean a total increase of 2 percentage points, to 2,25-2,5%. This, in turn, would mean that with inflation approaching 9 percent. very deep negative real interest rates will continue to apply in the US.

The markets don't panic after revealing the Federal Reserve cards

The bond market seemed to react to the Fed chairman's words as yields could rise and the curve flattened. The reactions of other markets seemed to be calmer. Contracts for stock indices, after several days of strong gains, do not react with panic declines, but with slight corrections. In the most - as it may seem - risky cryptocurrency market, bitcoin and ethereum have established local peaks. Price BTC increased to $ 43000, and ETH to $ 3000.