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The dollar will conquer the world

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The extraordinary rise in interest rates translated into extraordinary inflation. The Fed’s interest rate hikes, which began at a quarter point in March and reached half a point in May, have finally reached 75 basis points. With the highest interest rate hike in 28 years, the policy rate rose to the 1.50-1.75 percent range. The rate hike will continue apace. Finally, we got to the hard part of the job with the decisions that shocked the unexpected rise in inflation.

➔ At the same time, the Fed raised the level at which it would have suspended the rate hike by half a point. As monetary tightening tightens, its uncertainty will be used as a policy tool.

➔ Not satisfied with this, the Fed made a major adjustment to its economic forecasts. With the effect of interest rate hikes, growth will decline and unemployment will rise.

➔ With its decisions, the Fed “I am determined to fight inflation” gave the message. The markets, which wanted to see stability, gave the first reaction after the explanations in a positive way.

➔ Anyway After the first few hours of shocking decisions passed, it was quite hard to digest. While the world stock markets had a premium of around 1% on Wednesday when the decision was made, they lost 2.5% yesterday.

➔ US stock markets, on the other hand, fell between 4 and 5 percent. Gold also got a premium first, so it regressed.

➔ On the other hand, 4,100 points, which is the important support level in the S & P-500, has been broken with the lows of the last few weeks. The next support is expected at 3,500 points.

➔ A decrease of 3500 points below 200-300 points is considered a recession level.

TWO IMPORTANT FEARS

➔ First, it fueled fears that accelerating interest rates and tight monetary policy could slow the economy and cause a recession.

➔ Second, question marks about the Fed’s credibility are growing in the markets. The bank expects the interest rate to be 3.4 percent in 2022. As of March, that estimate was 1.9 percent. Compared to March, a 1.5% higher interest rate was expected.

➔ The growth expectation for 2022 is 1.7%. This figure was 2.8 percent in March. It has just passed since March. In 2 months, major changes have been observed in the bank’s forecasts.

➔ In Wall Street circles “How can you trust a central bank that errs and constantly revises itself, even in the short-term forecasts, not to mention the long-term forecasts?” sight gains weight.

➔ The Fed’s defense is as follows: “We are very determined to fight inflation. But our sphere of influence has its limits. Geopolitical developments do not make the job easier. War triggers inflation. The measures of the Chinese crown are disrupting the supply chain. But in the end we will win the war against inflation. “

‘DATA IS BAD, WE TAKE STEPS’

➔ Intervention after drastic rate hikes and drastic revisions of forecasts Fed Chairman Jerome Powell From the beginning of the line he said:

➔ “We are aware of the emergency and will do our best to reduce inflation.

We adapt our policies to the environment and will continue to do so.

We will take the level of interest movements from one meeting to another.

The magnitude of the rate hike will change based on upcoming data.

Extraordinary circumstances require extraordinary steps.

I said that if the data is invalid, we will take measures accordingly, it did.

After the consumer inflation data, we have decided to hit 75 basis points.

A step like today cannot be expected to repeat itself over and over again.

But next month, a 50-75 basis point hike might be appropriate.

➔ We should see a significant slowdown in inflation to return to normal interest rate hikes.

What will a 75 basis point increase do that 50 basis points can’t do? A very clear step towards inflation was needed and we did it.

➔ The data will show us the path we will take and the severity of the steps we will take.

➔ I don’t know how tight we should be to keep inflation in check. The data will show it.

EVERYWHERE WITH MONETARY POLICY

➔ Eventually we will get positive results. We will not declare victory until we have a clear signal that inflation is falling.

➔ At this point I was expecting a lull in inflation. Many problems we cannot control affect our policies.

We cannot control energy prices. But this pen affects all numbers.

With the passage of time, things do not get easier, on the contrary, they get more difficult.

The solution to the events we live in is not written in any book.

➔ The unemployment rate is historically low. But we cannot talk about a healthy working environment without price stability.

We expect an improvement on the inflation side. But the war environment does not facilitate the work. It is the same situation all over the world. We cannot solve these problems with monetary policies.

Things have gotten a little more difficult in the past 4-5 months.

➔ We must ensure price stability. We must achieve this. Because if there is no price stability, the economy cannot function.

The greatest risk is overdoing or underestimating the steps. The biggest mistake is failing to keep inflation down.

We don’t know what kind of world we are heading towards. It is not easy to predict the conditions in the new world ”.

EXPORT OF UNITED STATES INFLATION TO THE WORLD

➔ Global financial markets haven’t deteriorated much despite President Powell’s hawkish statements with uncertainties and shocking decisions.

➔ Also “We can increase 75 basis points again at the next meeting” despite trying. How come?

The markets were expecting a clear sign of fighting inflation. He saw this with 75 basis points. In this sense, the uncertainty has disappeared.

➔ The effects of the rate hike hit the markets months later. But ordinary people immediately feel the consequences of a rise in interest rates, from consumer loans to mortgages, from credit card interest to daily shopping.

➔ Inflation reaching 2 percent levels in the short term is purely a fantasy. Hopefully, year-end inflation could be around 7%.

The appreciation of the dollar with restrictive decisions is bad news for the world. Because many countries will be in trouble with the “precious dollar” wave.

➔ Because the dollar is the world currency and many products from the food sector, oil, metals to the service sector, which are the subject of world trade, are traded in US dollars. The more the dollar appreciates, the more the price of goods and services will rise in the non-US world.

➔ In a sense, the US will export inflation to the world. In this sense “The dollar is our money, but your problem.It is worth recalling the words of President Nixon’s Treasury Secretary Cornally.

➔ This Fed shift has a dominance effect for global central banks. Interest rate hikes have accelerated since yesterday.

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