To The Moon

The Federal Reserve (Fed) is facing one of its toughest interest rate decisions in recent times. Despite the pressure from inflation, which would normally call for a two-point rate hike, the US banking industry is showing signs of a lack of confidence in a high-interest-rate environment. Additionally, the forced merger of Credit Suisse by the Swiss government has added to the already unstable global financial market. A two-point rate hike at this time could further damage market confidence.

If the Fed adopts a more conservative approach, such as temporarily suspending interest rate increases to observe the situation, investors will immediately anticipate an interest rate cut due to economic recession as the Fed's justification. This could cause inflation expectations to resurface, potentially rendering the Fed's efforts of the past two years futile. Raising rates by one point and continuing to monitor economic changes seems to be the only option for the Fed, with interest rate futures predicting a 70% chance of a one-point rate hike.

The decision this time around is particularly difficult for the Fed, with time being the most crucial factor. Treasury Secretary Yellen came out yesterday saying that the US economy is doing well in order to suppress inflation expectations. The Fed must continue to raise rates, but not by too much, and the statement cannot be dovish. The statement will likely continue to firmly combat inflation, among other things, in an attempt to delay major decisions and await the release of more economic data.

In the face of this difficult decision, investors should pay close attention to the Fed's announcement and monitor any changes in the market. If the Fed decides to suspend interest rate increases to observe the situation, investors should be prepared for the possibility of an interest rate cut in the future, potentially leading to a resurgence of inflation expectations. If the Fed decides to raise rates by one point and continue to monitor economic changes, investors should take note of the potential impact on the market and adjust their investment strategies accordingly.

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