FX.co ★ Thomas Barkin: the main goal is a key rate at a neutral level.

As we have already said, the US stock market continues its powerful decline, which is a correction against the previous upward trend. In principle, now there is not even a second possible scenario, except for the further fall of indices and stocks. We have already talked more than once about the mechanism of why risky assets will continue to fall. It should be noted that at this time, the cryptocurrency market is also falling, for which there was no outright negative in the form of a fundamental background. Of course, the same intentions of the Fed to raise the rate in the area of 2.5-3.5% can be considered negative, but we recall that the cryptocurrency market is an international market that does not depend only on the Fed or the States, and the US stock market is exclusively American. Naturally, the stock market depends much more on the decisions of the Fed than the cryptocurrency market. However, as we can see, cryptocurrencies are also falling very cheerfully and quickly. Thus, we are now talking about the fall of all risky assets, as the demand for safe assets is growing. And because of the difficult geopolitical situation in the world, and because of the increase in rates by many central banks.

Meanwhile, Richmond Fed Chairman Thomas Barkin said that only after the Fed raises the rate to a neutral level, it will analyze the state of the economy and make further decisions on tightening monetary policy. At the same time, the inflation indicator will be analyzed especially scrupulously. He noted that the Fed's monetary policy plans will not necessarily cause a recession in the economy. Barkin also believes that the main goal of the Fed in the next year or two will be to bring inflation under control. From his point of view, controlled inflation will ensure the necessary economic growth and generate the maximum level of employment. The head of the Federal Reserve Bank of Richmond also said that inflationary pressure factors associated with the pandemic will sooner or later cease to have an impact. As you can see, Thomas Barkin did not tell the markets anything new. The plans remain the same, and they are to bring the key rate to a neutral level as soon as possible. After this goal is achieved, the Fed will analyze the indicators of GDP, demand, and inflation especially carefully and the rate hike will slow down. Also, do not forget that the QT program will begin its operation on July 1, which means the withdrawal of excess money from the American economy. This factor will also put pressure on inflation since now the reverse process begins to what we have observed in the last 2 years: there will be less money in the economy. For those who do not remember, inflation is an increase in the money supply with a constant amount of goods and services produced, as a result of which prices are rising. So now the Fed is launching the reverse process.