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How Market Reacts To Long Term Inflation Expectations

With market expectations of "long-term inflation expectations," it appears that a consensus is forming around an increase of 100 basis points (bps), resulting in a severe drop in the cryptocurrency market since early monday

By EstalontechPublished 2 years ago 3 min read
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Coming Wednesday and Thursday , following the FOMC meeting, let us hope that the index market has already anchored in deep and rigid enough to allow for small shockwaves.

Last week, the overall performance of US stocks was negative. During the course of the week, the S&P sank 4.7%, the Nasdaq dropped 5.5%, and the Dow fell 4.1%.

The yield on the US 10-year Treasury continued to climb, moving up by almost 14 basis points to close at 3.454%. The spread between the yield on the US 10-year Treasury and the yield on the US 2-year Treasury was -41 basis points, which further deepened the inversion. 

This was primarily due to the fact that the US 2-year Treasury yield rose more as the market anticipated the Fed to raise rates more aggressively. The fear index rose by almost 15.5% during the course of the week. Crude oil futures saw a reversal to the downside, falling 1.27 percent over the course of the week to end at 84.99. 

Gold prices on the spot market have reverted to losses, falling by 2.43% for the week. The US Dollar Index finished the week at 109.65, reflecting a gain of 0.63%.The strong dollars is felt across globally as recession is looming and that boost further on long-term inflation expectations as all index looks for better companies performances to absorbs frequent shockwaves 

The market's attention is currently focused on the Federal Reserve meeting that will take place this coming Thursday. At this meeting, Powell may provide direction for a rate hike of 75 basis points .Despite the fact that the Federal Reserve has prioritized inflation during previous tightening cycles and has kept borrowing prices at historically low levels for an extended period of time since early covid days , market starts to expect long term infliction and may have found some comfort zones to push through for coming rate hikes 

 In some past rounds of rate hikes, the Fed lowered interest rates multiple times before the unemployment rate reached its highest point. It is also noteworthy that the policy rate ended up either being the same as or much lower than it was at the beginning of the cycle and that it remained at that level for a considerable amount of time after the unemployment rate had decreased. This is something that should be taken into consideration.

This serves as an excellent example of how the Fed should carry out its twin responsibilities. When inflation goes out of control, policymakers pull the tightening lever, which then causes unemployment to grow, which is required for the Fed to pull the easing lever afterward. 

Since this is the case, the question is not whether investors who are ready for a future rate cut will be rewarded, but when they will be rewarded.

This week's most important facts and happenings 

After the Federal Reserve's monetary policy meeting on Thursday, Fed Chair Jerome Powell will give a speech, so like before Powell seems to be the main factor to volatility , any comments is almost equivalent to Hulk's Shockwave clap that rattles the confidence level 

The PMI for the US services sector for September was released on Friday.

Investors are concerned that the Federal Reserve will need to be more aggressive in raising interest rates to combat inflation, even at the risk of plunging the U.S. economy into recession. 

As a result, it is best to look at less action for the time being. The index decline will affect individual stocks as well, but the impact is only temporary; as long as individual stocks are experiencing rising conditions, there will not be a significant problem. 

The future will rise; once that happens, crypto will rise.

#Disclaimer Note : This publication is not intended for use as a source of any financial , money making legal, medical or accounting advice. The information contained in this guide may be subject to laws in the United States and other jurisdictions. We suggest carefully reading the necessary terms of the services/products used before applying it to any activity which is, or may be, regulated. We do not assume any responsibility for what you choose to do with this information. This article is not meant for financial advice , Use with your own judgment.

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Estalontech

Estalontech is an Indie publisher with over 400 Book titles on Amazon KDP. Being a Publisher , it is normal for us to co author and brainstorm on interesting contents for this publication which we will like to share on this platform

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