FX.co ★ Thomas Barkin: not every recession is like great recession

The main US indices – DOW Jones, NASDAQ, and S&P 500 – closed higher on Friday. We still believe that this is an illogical behavior of investors. However, there could be some logic in it either. It could be that many believe a surge in US inflation is over and now expect it to get back to the 2% target. We do not know for sure. What does the purchase of shares have to do with it if the US Federal Reserve is going to continue tightening? Still, the stock market is the same market as the currency market, with a huge number of participants who do not always trade according to generally accepted logic. Therefore, the stock market is likely to become bearish sooner or later. However, we cannot deny the fact that stocks and indices are now on the rise. That is why, in any unusual situation, it is important to turn to technical analysis.

Meanwhile, Federal Reserve Bank of Richmond President Thomas Barkin has recently given a rather interesting and extensive interview. He notes that the American economy is coping well with monetary tightening, while inflation is driven by strong demand and supply chain problems. He pinpoints that "raising rates would not be inconsistent with a tight labor market," so the recession is already quite doubtful. "We are on brink of moving real rates to positive territory," Barkin stated. "You need to get inflation down on a sustained basis, then talk about what you do with rates. There have been a lot of modest recessions. Not every recession is like the great recession. We've got a lot of time before the September meeting," the president of the Federal Reserve Bank of Richmond emphasized. The Committee will keep its eyes on economic data and make up its mind closer to the meeting.

Barkin made it clear that monetary tightening will continue, which is a bullish factor for the greenback and a bearish one for the stock market. A lot will now depend on the next inflation report, which will either show a slowdown or an acceleration in consumer prices. In the latter case, there could be a high possibility of a third 0.75% rate hike, as both the Federal Reserve and the economy need inflation to return to the 2% target, and not just slow down.