FX.co ★ Head of Chicago Fed expects inflation to slow down

The US stock indices have recently been traded mixed. The Dow Jones continues its corrective move. The S&P500 is steady at its highs. Meanwhile, the NASDAQ updated its high yesterday. Overall, all three indices are still traded around their all-time highs. So far, investors are not concerned about the possibility of monetary policy tightening in the United States. This week, practically all the presidents of regional reserve banks and members of the Board of Governors delivered speeches.

One of the last to speak was Charles Evans, head of the Chicago Fed. Like some of his colleagues, he expects inflationary pressures to decrease next year and the stimulus program to end by the middle of next year. Only then, the Fed could consider the possibility of the first interest rate hike, according to Evans. The head of the Chicago Fed also noted he counted on higher resilience of supply chains. He said that households would be hit the hardest by rising energy prices, which could also trigger an economic slowdown. At the same time, Evans pinpointed the excellent state of the stock market.

Overall, Charles Evans's speech did not contain any new information. Everyone knows that the poor suffer the most from rising prices for natural gas, petrol, and electricity. What is more, growing energy prices always boost inflation. At the same time, many heads of regional banks believe that QE tapering will end by the middle of 2022. The same goes for interest rate hikes. Only James Bullard, the president of the Federal Reserve Bank of St. Louis, spoke in favor of earlier policy tightening this week. Perhaps several other Board members will support his view but it will not be enough to speed up the pace of tapering in December, not to mention an earlier increase in the key rate.

So far, the US stock market is likely to remain bullish. It is expected to enter a correction as soon as QE tapering is over and the Fed starts raising interest rates. Alternatively, the bubble that has been formed for the past 18 months could burst. If so, investors could see several more months of yielding profit. Moreover, inflation is at its highest level, which means that investors still need a hedging instrument.