Global financial markets have been hit by aggressive US policies
Global financial markets have seen wild swings from the escalating war between Russia and Ukraine, which has distorted global supply chains already suffering from the disruptions caused by the pandemic.
This has led to a surge in inflation. The reaction of an aggressive monetary tightening outlook from the US Federal Reserve has unsettled investors around the world and heightened risks of stagflation.
Higher interest rates to fight rising inflation will slow demand and economic activity and growth.
Fed officials have spoken openly of larger and more significant rate hikes to combat runaway inflation, with a 50 basis point (bps) hike in May a given in May, with one politician even proposing a 75 bps rate hike.
Is the blow to financial markets what Federal Reserve Chair Jerome Powell meant by delegating monetary tightening to control rising inflation, asked Dhananjay Sinha, MD and chief strategist at JM Finance Institutional Equity, in a LinkedIn post – referring to the more aggressive US monetary policy stance.
“US stocks have fallen below Ukraine-Russia war lows, the dollar index DXY is at a 22-year high, while US Treasury yields have risen sharply. And we still have to enforce Fed tightening. Real US GDP contracted by 1.4%. in Q1, and the purchasing managers’ index for China’s manufacturing sector also declined sharply,” the LinkedIn post said.
“Is that what Powell intended by broadcasting monetary tightening to control 40-year high inflation by correcting financial asset prices? If the answer is indeed yes, then we are in for a period of heightened volatility. EUR-USD can break parity and DXY can move much higher. Watch out for industrial and agricultural commodities now,” he added.
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