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breaking news BlackRock expects central banks to continue crushing demand and raising rates in recessions


BlackRock expects hikes this week from the Fed, ECB and BoE, with more to come:

  • Obtain inflation

    Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country based on the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.
    Read this term down means they need to crush demand, presaging a recession.

  • We expect central banks to keep rates high as the recession unfolds, not save the day as in the past.
  • Still, Treasury yields have fallen as the market expects Federal Reserve

    The Federal Reserve System, more commonly known as the Fed, represents the central banking system of the United States. Like other central banks around the world, the Fed is responsible for monetary policy, in this case in the United States. The Fed is one of the most watched and followed entities for forex traders, given its large impact on the US dollar. Originally founded in 1913, the Fed was created to perform a wide range of functions. This includes stabilizing and maintaining flexible monetary policy in the United States while strengthening a financial system for the country. Its general functions are to set and guide monetary policy and oversee the efficient functioning of the economy, both of which serve the public interest. by the Federal Reserve Board of Governors. The current interest rate and expectations of future interest rate changes can influence the value of the US dollar. For example, if traders anticipate a change in interest rates based on announcements from the Board of Governors, this may cause the US dollar to appreciate or depreciate against other currencies. Forex traders should always be aware of Fed meetings and announcements and should follow developments within the central bank. Ultimately, the Federal Open Market Committee (FOMC) holds eight regular meetings per calendar year, where policies and interest rates are discussed and agreed upon. The best course of action is to stay on top of the news ahead of these meetings as a forex trader to make predictions on interest rates and whether to buy or sell the US dollar.
    Read this term rate cuts, with the yield curve inverting further. We believe this misrepresents hopes for an old recessionary scenario and we remain underweight developed market equities and long bonds.

After:

  • We think markets are pricing in rate cuts from mid-2023 (the dark orange line in the chart) because they believe the Federal Reserve will come to the rescue when the recession hits – the old playbook. view has made US yield curves the most inverted since the Fed’s last rapid hike cycle in the 1980s, with five-year Treasury yields falling more than two- and 10-year yields over the course of the last month. This inflated stocks. We expect core inflation to fall further next year from current levels, but we believe central banks will not bring it back to the 2% targets. That would require an even deeper recession, in our view, and we see them coming to a halt before such an outcome as the damage of excessive policy tightening becomes clearer. So we see central banks living with inflation consistently above target – and they won’t be able to cut rates as quickly as markets expect, in our view.

I don’t see the Reserve Bank of New Zealand mentioned in the Black Rock report laying out its views, but marching into recession is exactly what the RBNZ is doing right now.

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