Fast and furious tightening by the Federal Reserve risks plunging the economy into recession, and economists fear the central bank is making another mistake after a recent slow response to runaway inflation.
A string of massive interest rate hikes of 75 basis points, with at least one more expected in November, according to experts, means that officials are not going to wait for the effect of their actions before acting again.
The risk of an aggressive policy without analysis of the actions of Fed officials could drive the economy into a much deeper recession than expected. Given the lag of some inflation data, this is already a concern for many politicians.
Let me remind you that Fed officials started raising rates from almost zero only in March, after the price pressure had already reached a significant level. After their delay, they are now ramping up the burden on the economy at a record pace to catch up, with the price of a mistake being the future economic pain caused by inflation-suppressing actions. The Fed has already raised rates by 3 percentage points this year, with the bulk of the increase coming in the summer, and has vowed to keep raising rates until it sees clear signs of lower inflation.
According to the latest reports, inflation in the US resumed its growth in August, which forced the Fed to return to discussions on the topic of maintaining a further aggressive policy. The Fed's current actions have already pushed up the cost of borrowing on everything from home loans to cars, but the full impact of these moves on the economy will only be known in the next few months, given the time it takes for current changes to take hold across all areas.
Experts say that without creating the respite that many traders and investors hoped for in the early fall of this year, politicians risk causing a larger slowdown in the economy than necessary, as well as potentially damaging the labor market more than anticipated.
At their meeting later this month, Fed officials said they would raise rates by another 1.25 percentage points this year, which could mean another 75 basis point hike in November and a half-percentage increase in December. According to the Fed's median forecast, next year rates will rise by another quarter of a point. All this supports the dollar and puts pressure on risky assets, especially in the face of a deteriorating geopolitical situation.
As for the technical picture of EURUSD, the bulls have regained their advantage and the market under their control, which they lost at the beginning of the week, and now they are aiming to break through the nearest resistance at 0.9840. This is necessary if they expect a continuation of the upward correction at the end of this month. The breakdown of 0.9840 will take the trading instrument even higher to the area of 0.9890 and 0.9950. But despite the good upward prospects, the bulls' main task is to protect the immediate support of 0.9780. Its breakthrough will push the euro to a low of 0.9730, but in this situation there will be nothing critical, since the lower border of the new rising channel passes there. You can start to get nervous only if you miss 0.9730, as the pair will easily fall to the area of 0.9680 and 0.9640.
The pound continues to win back positions one by one thanks to the support of the Bank of England. Now the bulls are focused on the resistance at 1.1200, the breakthrough of which will open the prospects for further recovery in the area of 1.1260 and 1.1320. It will be possible to talk about the return of pressure on the trading instrument only after the bears take control of 1.1070, but this will not cause serious damage to the bull market observed since the middle of the week. Only a breakthrough of 1.1070 will push the GBPUSD back to 1.1010 and 1.0950.