In the U.S., the Federal Reserve went against its recent forward guidance and delivered its first 75bps increase since 1994. Chair Powell explained in his press briefing that the jump in longer-term inflation expectations reported by the latest University of Michigan survey on Friday of last week tilted the balance at the FOMC in favor of more aggressive tightening. Powell also pledged to implement and maintain sufficiently “restrictive” monetary policy to bring inflation down to its 2% medium-term target but acknowledged that the supply-side factors that dominate the U.S. and global inflation outlooks are “outside of the Fed’s control”. The prospect of further 75bps hikes at upcoming meetings roiled markets amid quick repricing of the Fed’s pace and terminal interest rate in the current cycle and corresponding increasing recession fears. The Fed’s updated dot plot of individual economic projections sees the year-end policy rate at 3.4%, versus 1.9% in March, and at 3.8% in 2023 (vs 2.8% previous), but prominent Fed-watchers have expressed concerns that those projections might need to be revised again soon. While the Fed’s largest move in almost 30 years was expected by markets in the wake of the latest U.S. inflation data dynamics, the Swiss National Bank (SNB) delivered a real shock by hiking its policy rate by 50bps to -0.25%. SNB’s first rate increase since 2007 carries major global market implications as it represents a structural policy shift by arguably the most dovish major central bank away from its long-standing battle to prevent Swiss Franc (CHF) appreciation toward focusing on combating inflation by hiking rates and accepting the risk of a stronger currency. The CHF surged to multi-decade highs against other major currencies in the aftermath of SNB’s decision. Amid increasingly hawkish bias by global central banks this week, investors are recalibrating expectations about terminal rates and the economic impact of tighter monetary policy across EM and DM. The critical question for markets at this stage is “When will peak hawkishness occur?”. The answer hinges mostly on developments in Ukraine and China with geopolitical overtone, which makes it unusually complicated to handicap for both policy makers and investors.

Jerome Powell, the Chair of the Federal Reserve of the United States is attempting to paint a happy picture of the state of the US economy. However, things are far from being happy. In reality, the economy might be heading towards one of the deepest slumps ever in US history. In an attempt to halt the price aggression driven by Inflation, the Fed authorities earlier this week hiked interest rates exponentially. The hike in percentage numbers is something that American consumers have not witnessed in almost three decades. When the state of the economy makes big industry players like Walmart feel the heat, it becomes imperative to understand the quality of impact. It is considered a recession to be a state when the GDP of a nation falls back-to-back for two consecutive quarters. US GDP plunged almost 1.4% in the first quarter of 2022 due to multiple factors like a spike in COVID cases, the war in Ukraine, and bad policy execution at home. Biden would soon be expected to start pointing fingers at his predecessor to Putin and maybe even Zelensky. But the American misfortune is mostly of their own creation this time with just a little support from geopolitical factors. However, the mood of the voters would soon be reflected through the upcoming midterm elections in November where the Democrats would have to put up a strong fight to protect their upper hand in Congress. Biden needs to buckle up for a bumpy ride if his party loses the ability to push through necessary policy to pick up the economy. The consumer purse has lightened due to high inflation and the consumer is now fearing a complete hit on its purse. Biden is busy coming up with propaganda that could show the economy in good condition. The common citizen, however, is scared of the thunderstorms that are to follow. The ruling government is trying to paint a positive picture through its propaganda machine. Although, propaganda channels could not even straight off lie blatantly when facts speak for themselves. Joe Biden knows he has made a blunder while tackling inflation. Now, when nothing is working out. Joe has blamed the Federal Reserve for the inflation. Let the White House say what they want to say, the truth remains that Joe Biden’s blunder during the Russia-Ukraine war has made the situation worse for America, and so for the world. This blame game isn’t going to work out for Biden this time.

A top US Federal Reserve official expressed early support for another 0.75 percentage point interest rate rise at the central bank’s next meeting in July, in anticipation that inflation will not moderate sufficiently to slow the pace of monetary tightening. In a remark delivered on Saturday, Christopher Waller, a Fed governor, affirmed the central bank’s commitment to tackling the worst inflation problem in more than forty years, saying it was “all in on re-establishing price stability”. Waller’s comments come just days after the Fed significantly stepped up its efforts to tackle soaring prices and implemented the first 0.75 percentage point rate rise since 1994. The Swiss National Bank and Bank of England also raised interest rates this week, as the world’s central banks took aggressive action to stamp out surging inflation. In addition to raising the federal funds rate to a new target range of 1.50 to 1.75%, the US central bank also signaled support for what looks set to be the fastest monetary tightening since the 1980s. Most officials now expect the policy rate to rise well above 3 per cent by the end of the year and potentially notch as high as 3.8% in 2023. Reflecting that this rapid rise in borrowing costs is likely to cause some economic pain, policymakers projected the unemployment rate rising over the next two years from its current 3.6% level to 4.1% in 2024, with core inflation still just above its 2% target. Rate cuts are also expected by then, as growth is projected to slow below 2%. The central bank is now poised to continue tightening the screws of its monetary policy in forceful fashion, with Powell indicating it will maintain an aggressive pace until officials see “compelling evidence” that inflation is moderating. That entails a series of decelerating monthly inflation numbers. For its next meeting in July, the chair said the Fed would probably choose between a 0.50 or 0.75 percentage point increase, but some economists believe an even bigger move of a full percentage point is not completely off the table. Neel Kashkari, the dovish president of the Minneapolis Fed, on Friday said he could support another 0.75 percentage point move next month, but cautioned the central bank against doing “too much more front-loading”. He said a “prudent strategy” may be continuing with half-point rate rises after the July meeting “until inflation is well on its way down to 2%”

As the European Central Bank prepares to end its era of easy money and start raising interest rates, economists will be tracking whether business activity has grown at a slower pace than expected in the face of surging inflation. A monthly survey released on Thursday is forecast to show that eurozone business activity expanded in June, but at a slower pace than in May. Economists polled by Reuters predict that the ‘flash’ or early reading of the S&P Global composite purchasing managers’ index for the eurozone will come in at 54 compared with 54.8 a month earlier. Any number above 50 indicates growth rather than contraction. That consensus estimate comes as businesses and consumers in Europe grapple with record inflation levels stemming from supply chain disruption and the soaring price of goods and energy, exacerbated by Russia’s invasion of Ukraine. Will Norway announce an extra-large rate rise? Norway may have been ahead of other big central banks in tightening monetary policy before the current inflation scare. But even after three rate rises since last September, Norges Bank still faces questions about the pace of future increases when it meets on Thursday. It is expected to raise interest rates by 0.25 percentage points to 1%, and to indicate that it will speed up future rises. Nordea, the Nordic region’s biggest bank, expects four more increases this year after next week, with the subsequent one due in August, a more rapid increase than Norges Bank indicated in March. By the end of 2023, its main policy rate should be 3%, Nordea believes. Norway, western Europe’s leading petroleum producer and one of the world’s richest countries, is suffering from many of the same issues as other developed nations — from rising inflation and wage pressure to worries about future growth. But it also has the world’s largest sovereign wealth fund, which provides about a quarter of the government’s budget, and sky-high revenues from oil and particularly gas. Could Norges Bank be tempted to follow the US Federal Reserve with a large rate rise? The Nordea economists do not believe so, arguing that as 94% of households have floating mortgage rates (versus about 10 per cent in the US) Norway’s policy rate is effectively transmitted to individuals, lessening the need for shock rises of 0.5 percentage points or more.

Crisis in digital assets deepens as crypto market benchmark falls sharply Bitcoin’s price has broken below the key threshold of 20,000 USD for the first time since November 2020, risking triggering a fresh wave of selling and deepening the crisis gripping the digital asset sector. The largest cryptocurrency, which acts as a benchmark for the broader crypto market, plunged to under 18,000 USD on Saturday, a fall of around 14%. That took it below the peak level of the previous bull run in crypto markets in 2017 and erased years of gains for long-term holders. Later in the day it rallied somewhat to top 19,000 USD but fell again early on Sunday to around 18,200 USD according to website CryptoCompare. Traditional financial markets were shaken this week after a trio of big central banks, led by the US Federal Reserve, boosted borrowing costs as part of an effort to tamp down intense inflation. Global equities posted their worst week since the darkest days of the pandemic in March 2020 as traders fretted that the aggressive action could snarl global growth or even trigger a recession. The crypto market has sustained particularly acute pressure as the race for returns prompted by the massive stimulus efforts of central banks and governments at the height of the pandemic abruptly shifts into reverse. Investors and executives have been anxiously watching the price of bitcoin in recent days, fearing a drop below 20,000 USD may prompt forced liquidations of large leveraged bets in the markets, putting more pressure on the price and worsening the credit crunch that has already struck large crypto lenders and traders. Bitcoin has shed more than 70% of its value since its peak last autumn as investors flee more speculative assets with the tightening of monetary policy around the world by central banks. Total crypto market value has dropped below 1 trillion USD from a peak of 3.2 trillion USD. The price of ether has also dipped below 1,000 USD, taking its declines this year to more than 70%. Smaller lenders have also reduced or paused withdrawals, while Toronto-listed crypto platform Voyager on Friday inked a deal to borrow more than 200 million USD from trading firm Alameda.