Doubt on stock markets and falling oil prices
On Wednesday, 29th June, European Central Bank's Governor, Mrs. Lagarde, hosted the FOMC Chairman Jerome Powell and Bank of England (BOE) Governor Andrew Bailey on the last day of the ECB Forum on Central Banking in Sintra, Portugal.
One of the main effects of the recent recession caused by the Covid-19 pandemic and possible upcoming recession, primarily because of the Ukraine-Russia conflict, is the social class division. However, we can see another version of social class division between economies. Today we could see the fears of the possible effects of this imbalance among economies in speeches. Lagarde said, "Fragmentation is a threat inherent in the Eurozone structure." Furthermore, Powell added: "There is certainly a threat of de-globalization."
Powell still believes that the US economy is "in pretty strong shape" and will be able to cope with tighter credit conditions, not suffering from the economic recession or any crises in the labor market. Also, we could understand that he believes that the economy will not face a sell-off or recession, and growth reduction will not be sharp. About the inflation, repeated that it will be a "soft landing" but also warned that it will become "significantly more challenging" the longer that high inflation lasts. Of course, the worrying point is that we may see the same behavior in wages and prices. If it happens, it means that pressure on society's economy and people will continue and hold the recession risk still high.
Powell also said: "The clock is kind of running on how long will you remain in a low-inflation regime ... The risk is that because of the multiplicity of shocks, you start to transition into a higher inflation regime, and our job is to literally prevent that from happening, and we will prevent that from happening,"
In fact, we did not see anything unique and new; all three governors almost repeated the same ideas as before, just with different words. Still, for the FED, controlling inflation is the main priority, even if the rate hike pushes the economy towards a recession or leads to rising unemployment.
We had other FED speakers also that had speeches yesterday. Today, Cleveland Fed President Loretta Mester, speaking at the ECB conference, primarily supported the idea of more tightening policies.
Now eyes are turning to Thursday's personal consumption expenditures price index. If the index is still above 6%, we have to expect another 75 basis point rate hike in the next meeting.
Stock markets were mostly flat with a slight downturn as they did not get anything new from the conference other than prolonging concerns. In the energy market, WTI sharply fell to 108 from 112 US dollars, gold had an elevator back and forth from $1,815 to $1,833 and back to its place, and the US Dollar index jumped above the 105 mark, and it is expected to continue the way.