At the beginning of 2023, the inflation rate in the United States is as high as 6.4%, and the United States is facing the most serious inflation in 40 years. The US Dollar is languishing despite Treasury yields ticking up in the North American session and ahead of today’s Federal Reserve rate decision. The DXY (USD) index has sunk to its lowest level since mid-February near 103.
Expectations of a rate move at the Federal Open Market Committee (FOMC) meeting moved slightly toward a 25 basis point hike. Although it is still not fully priced in with the interest rate market weighing the probability of such a move to be around 75%.
The Fed is caught between continuing the fight on problematic inflation and an unfolding banking crisis.
The Fed’s new bank rescue program, which provides loans to inject cash into struggling financial institutions, comes at a time when officials are seeking to tighten credit in the banking system and cool the economy, with conflicting goals.
On the one hand, the Fed provides funds to banks in need so they can keep lending. On the other hand, the Fed is also raising the cost of borrowing for consumers and businesses.
As the Fed’s fight against inflation continues and rate hikes persist, the potential for a recession remains on the table — which is defined as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months,” by the The National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee.
Some experts think there is still a chance that the U.S. can stabilize its economy without slipping into recession while others argue a recession is inevitable if the Fed is to achieve its 2% goal.
The effects of inflation and recession are spreading, like dominoes, will wear us down.