On the 13th of June, the US released an updated Consumer Price Index (CPI) report. The report exposed the current rate of inflation in the States, at 9.1% annually. Following this report, citizens of the United States have panicked greatly, as they expect further economic meltdown.
Liz Young, a financial analyst, and investment expert shared her opinion on the rising inflation. She noted: “Markets now pricing in 150bps of hikes over the next two FOMC meetings (Jul & Sep) as the base case. Also, odds of a 100bp hike this month went from 30% to 50% in a jiffy.”
Indeed, the Fed will likely hike the interest rates once again, this time by as much as 100BPS. At the moment, there is a 41% probability of seeing that happening.
Why the Fed Will Hike Rates
The US Fed has been trying hard to combat inflation in the past year. Its major strategy has been increasing interest rates. Although Jerome Powell and other board members of the Federal Reserve have been criticized for this approach, it may not be put to a halt any time soon.
The Fed strongly believes raising rates will lead to deflation. Typically, when deflation occurs, hard assets and stocks plummet in value. This in turn gives the dollar a higher purchasing power.
Although prices of goods and services in the United States and the rest of the world have been on a steady increase, the US dollar is performing better than other many other currencies at the moment. A few days ago, the US dollar traded on par with the Euros. This will be the first time in the last two decades that both currencies will settle for a peg.
The recent economic chaos has also affected the cryptocurrency market. Bitcoin and altcoins have struggled to gain value in the last few months. With inflation and a global recession looming, crypto assets may suffer further turmoil.