Today, as we await FOMC (Federal Open Market Committee) meet, global markets are cautious over #Fed's expected interest rate decision. After two consecutive interest rates hike of 75 bps each, markets are expecting another 75 bps hike, although 100 bps hike is not off the table. 100 bps hike will create turbulent waves and would reflect Fed's tough stance to tame inflation. However, no matter how much Fed has sounded aggressive to raise interest rates, the hikes have not happen at that pace. Historically speaking, in order to beat inflation, short term interest rates have to increase over the inflation rate and we are nowhere near today.
US Inflation: 8.30%; Interest rates: 2.5%
Eurozone Inflation: 9.10%, Interest rates: 1.25%
Japan Inflation: 3%, Interest rates: -0.1%
UK Inflation: 9.9%, Interest rates: 1.75%
Amidst spark of recessionary fears due to high interest rates and high debt burden, the bond yields of few highly debt laden nations (EU) have already signaled red flags. Point that I want to make here is that raising interest rates to level of inflation looks unlikely owing to sparking recession fears and most importantly the debt burden that the countries have accumulated over the century. This is explained in my previous post below.
(FYI: India's Inflation is 7% and Interest rates are at 5.4%.)
Best,
Ushma
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