FX.co ★ Thomas Barkin: Inflation will decline, but not quickly.

In a recent piece, we analyzed Rafael Bostic's address as president of the Federal Reserve Bank of Atlanta. Notably, 10 days before the Fed meeting, all monetary committee members are barred from commenting on monetary policy. Thus, we are watching the most recent remarks of the chiefs of federal reserve banks. The next scheduled meeting is for July 26-27. Thomas Barkin, the head of the Richmond Federal Reserve, spoke last night alongside Bostic. His address focused mainly on the subject of inflation. In particular, Barkin stated that the Fed sees a clear path to cut inflation and that an American economic slump is possible. Barkin predicts inflation will continue to rise for several more months before beginning to fall. It will be the same systematic approach as its ascent to 8.6%. He also observed that decreasing energy and raw materials prices would contribute to a drop in inflation (the main thing is that prices continue to decline, not vice versa). The Federal Reserve has all the instruments necessary to control inflation. In addition, Barkin is extremely concerned about the Fed's ability to manage long-term price growth, given that changes in the global economy following the epidemic affect the Fed's ability to control different macroeconomic indicators. He is also concerned about the Fed's ability to tolerate future economic slowdowns, and the negative GDP figures for the first and, most likely, second quarters cause anxiety.

Barkin's speech is noticeably less hopeful than Bostic's. This indicates that not all Fed members believe a recession is inconceivable. Numerous individuals recognize that the fight against inflation will be lengthy and arduous and that immediate results should not be anticipated. Many also recognize that it will not pass without repercussions for the US economy as a whole — there will be negative effects. Consequently, our general conclusions remain unchanged to date. The American economy will continue to contract in 2022, and by the end of the year, annual growth will likely be negative, signaling the start of a recession. To return the consumer price index to 2%, inflation will need to be fought for at least 1.5 to 2 years, and it is quite unlikely that the interest rate will need to be hiked to 3-3.5%. The outlook for the US stock market, the cryptocurrency market, and risky assets and currencies would be harmed by a tightening monetary policy beyond what is now envisaged. Thus, we believe the decrease in the abovementioned markets, assets, and currencies may continue until the end of the year. The inflation data, which will be announced this afternoon, is now awaited.