The US remains the global economy, and though the dollar is weakened, it is still appreciating in value when compared to its peers.
The United States stock market and Treasury Yields went on a mild growth run on Monday as the broader financial ecosystem anticipates a softening interest rate hike at the opening of the Federal Reserve Open Market Committee (FOMC) meeting scheduled to commence on Tuesday, January 31. The expectations for the meeting which is expected to end on Wednesday have pushed the yield on the 10-year Treasury close to 2 basis points to 3.5366%.
The yield on the 2-year Treasury also shot up by 2 basis points higher to 4.2279%. Investors are notably sitting tight to watch the outcome of the FOMC meeting in which the Feds are expected to reduce the interest rate. Though speculative, the expected rate of cut is pegged at 25 basis points, a figure, which if announced will show that the apex banking officials are quite amenable to the plights of top market leaders.
The year 2022 saw the global financial ecosystem hit the rocks with growing inflationary concerns crippling most economies. While the inflation growth in the United States tapered down toward the end of 2022 and into this year showing a progressive decline, the last reading of 6.5% is an indication that the inflation is still sky high, and the Feds will not relent until it is significantly brought lower through targeted interest rate hikes.
While its actions are appreciated, the Central Bank’s approach has been faulted by a number of critics across the board. With a series of 50 and like three 75 basis point interest rate hikes last year, the argument was that the Fed was moving too high and too fast in a bid to curb inflation but neglecting the possibility that it might push the economy into a recession.
Neither outcomes are good and the apex bank in its rate hike announcement later this week will reveal what the next direction in the fight against inflation will be.
Interest Rate Hikes: Getting the Economy Back on Track
One major implication of the sky-high interest hike is that borrowing costs will be more expensive and while this policy generally favors the financial institutions, it puts a major strain on tech and manufacturing sectors which are often materialized in massive retrenchments.
This is notably the order of the day for the top tech firms in the United States. From Meta Platforms Inc (NASDAQ: META) to retail giant Amazon.com Inc (NASDAQ: AMZN), and Microsoft Corporation (NASDAQ: MSFT) amongst others, the rate of job losses amongst the top US companies has skyrocketed over the past 2 quarters.
The current expectations by industry leaders that the Fed will slow down interest rate hikes hinge on the possibility that with the breather, the economy can take a sigh of relief, and soak in the impact of the implemented hikes all through the previous year.
The US remains the global economy, and though the dollar is weakened, it is still appreciating in value when compared to its peers. This should aid the economy in its attempt to get back on track.
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