CRESCENT YELLOW
Dr. Famous economist Nouriel Roubini, who is also known as the Doomsday and Crisis Oracle, said that the aggressive tightening of the US monetary policies, which directly affects the liquidity in global markets, can lead to two results: “Either a hard landing or an out-of-control inflation.” According to Roubini, “If the US Federal Reserve really wants to push inflation towards 2 percent, it needs to raise the federal funds rates above 4 percent, or even 4.5-5 percent.” Speaking to Bloomberg, the famous economist said, “If they don’t raise interest rates that much, inflation expectations will get out of control.”
According to the Fed’s latest dotplot chart, the Federal Open Market Committee members’ year-end interest rate expectation is 3.347 percent. By the end of 2023, the level of 3.8 percent is predicted. Roubini, on the other hand, predicted that even if they increase the interest rate to 3.8 percent, inflation will still be at 8 percent levels above the target and the decrease will be very gradual. ” he uses. Goldman Sachs Co-Economist Jan Hatzius is among those who predict that the Fed will not be able to tighten without a deep and painful recession – a process known as the hard landing. “Every time inflation rose above 5 percent in the US and unemployment fell below 5 percent, the tightening of the Fed led to a hard landing,” Roubini said. “My baseline scenario will be a hard landing,” he said.
Rally in corporate bonds could brake
According to some experts, an inversion of the yield curve (yield on 2-year bonds above the yield on 10-year bonds) indicates that recession concerns continue. While the yield on the 2-year bond was 3.2 percent, the yield on the 10-year US bond rose slightly to 2.8 percent at the same time. The yield on 30-year bonds is 3.1 percent, behind 2-year bonds. The big rally in corporate bonds could also be put on the brakes by Fed minutes, according to an analysis in Bloomberg. In the Corporate Bonds Market Stress Index, which the New York Fed started to publish in June, the stress level in investment-grade corporate bonds is approaching the level in the first quarantines of COVID-19. If there is a signal that the aggressive tightening will continue in the Fed minutes, the difference between the yields of long-term and short-term corporate bonds, which falls below 200 bps, may decrease further, according to the analysis in Bloomberg. According to the data of Bloomberg Global Credit Corporate index, maturity spreads in corporate bond yields, which decreased by 35 bps in the last week, decreased below 200 bps, and the Fed’s for the first time. interest It has also fallen to low levels from the beginning of 2019 and past recessions, when it signaled that it would increase.
Dollar’s eye on Fed minutes
In global markets, Tuesday was a day when the dollar strengthened and the risk appetite of investors decreased with the expectations surveys from Europe and China. The dollar index, which weakened in recent weeks with the expectations of the recession and the “blink” of the Fed, and fell below 105, was again based on the 107 levels in July. If the Fed minutes to be released on Wednesday evening indicate that the FOMC will continue to increase interest rates at the same pace despite the slowdown in inflation seen in July – if the markets do not “blink”, the strengthening in the dollar index is expected to continue. As of 15:15 TSI, the dollar index was at 106.86, which has decreased by 10 percent since the beginning of the year. euroIn the /dollar parity, a decrease can be seen in the direction of equality again after the minutes.