The headquarters of JP Morgan Chase on Park Avenue December 12, 2013 in New York. JP Morgan Chase and federal authorities are close to a USD $2 billion settlement over the bank's ties to financier Bernard L. Madooff that involve penalties and deffered criminal prosecution. AFP PHOTO/Stan HONDA (Photo credit should read STAN HONDA/AFP/Getty Images)
The US Federal Reserve and other authorities have finally understood the impact of printing trillions of dollars and started to act on it. Initially, they believed that the inflation would be transitory, but that’s no more the case, and the authorities are increasing interest rates now to curb demand. There have been reports from CME Group that a 50 bps hike is likely. However, JPMorgan and Goldman Sachs think the feds plan to increase interest rates by 75bps soon.
It’s red all over the global markets
Everything is falling down, be it the stock market, gold, silver, or cryptocurrencies. Most major indices have shed a lot of gains they made after the COVID-19 crash. Even the S&P500 is said to be in a bear market right now. That being said, it is quite plausible that the market has already factored in the interest rate hikes, and we might move sideways for now.
Interest rate hikes are going to happen; the question is how much. A moderate approach would be 25-50 basis points, and some firms are even expecting a 75-100 bps increase. I think that the most likely scenario here is the 50 basis point hike because Christopher Waller, the Fed governor, even proposed that. He wanted to increase interest rates by 50 bps every meeting until inflation came near 2%.
Some might ask why raising interest rates is good if the market is falling because of that. Well, it’s because if inflation remains so high, the livelihoods of normal citizens will take a hit. And coming to the markets, they will recover sooner than later.
Goldman Sachs is betting on a 75 bps hike in June-July this year and at least two more hikes in 2023, pushing the rates to 3.75%-4%. As for the end of 2022, the firm expects the feds to raise interest rates to near 3.5%. There is a good chance that the US will be pushed to a short-term recession due to this. However, it is quite surprising that JPMorgan’s Marko Kolanovic thinks that the US will probably avoid it, and that’s because the Feds might advocate for low-interest rates due to the current situation of the stock and bond markets.
What are your thoughts as JPMorgan expects the Feds to increase interest rates by 75bps? And do you think we will see a hike of more than 50 bps? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.