As we said in the previous article, inflation now remains the main problem in the United States. Against this background, many economists began to panic, as they expect that the aggressive tightening of the Fed's monetary policy will lead not only to a decrease in the rate of price growth overseas but also to a significant slowdown in the economy. They believe that an increase in the key rate will lead to a significant drop in the labor market, although the Fed declares a "soft landing of the economy", which will not lead to an increase in unemployment. It should be noted that the unemployment rate is now the lowest in many decades and has reached pre-pandemic levels. From our point of view, if unemployment rises to 4% or 4.5%, there will be nothing terrible about it. It should be understood that the process of reducing inflation will not be able to pass painlessly. The Fed has been pouring "free money" into the economy for years, inflating the money supply to unthinkable volumes. Now this money needs to be withdrawn from the economy, and conditions need to be tightened. Naturally, there will be consequences of these processes. And the economy will shrink, and unemployment will grow, as companies will reduce the number of vacancies and maybe even lay off some employees. It is the latter that the Fed wants to avoid, and it will have to try very hard to increase the key rate only to limit the number of vacancies, while not provoking an increase in unemployment.
The issue of the recession in the American economy is also open. We have already seen that in the first quarter, US GDP shrank by 1.4%, which again may be an accident. Recall that in the first quarter, the Fed managed to raise the rate only once. It is unlikely that one increase has led to such a significant drop in economic growth. Anyway, there's no point in guessing now. Today, the May inflation report will be released, and we will be able to see whether the indicator has started the process of slowing down or if the April decline was an accident. And a little later this month, the Fed will hold a meeting, at which the rate is almost guaranteed to be raised immediately by 0.5%. As in the next month – July. Thus, the next two months may become fundamental. First, it will be possible to draw more or less definite conclusions about inflation. Second, it will be possible to find out whether the fall in GDP in the first quarter was an accident unrelated to the actions of the American regulator. However, all this is not too important for the US stock market right now. The Fed must raise the rate in any case and sell off its bonds. Therefore, we expect that stock indices will continue to fall in 2022. But the US dollar, which has fallen slightly against its European competitors in recent weeks, still has excellent reasons to strengthen against them. We assume that the dollar is currently correcting, but it is quite capable of resuming its long-term growth trend.
