Market Intelligence Analysis - The last hike: A new monetary police cycle in the US

The Federal Reserve probably executed the final rate increase in the ongoing monetary tightening process. While this signals the conclusion of a cycle, economies will need to address the “side effects” resulting from the fastest monetary tightening seen in over four and a half decades. Our Market Intelligence team has conducted a comprehensive analysis of this matter. Read on to gain valuable insights.

July 27, 2023

Alef Dias

On June 26th, the Fed likely made the last rate hike in the current monetary tightening cycle. Even though that seems to be the end of a cycle, economies will have to deal with the “side effects” of the fastest monetary tightening in more than 45 years.

As inflation cools down in the US, markets start to worry about whether we will be seeing a recession in the coming months and how strong this recession will be. The recession probability has risen a lot, but there are also fundamentals showing that it can be a mild one. Data from both the retail and manufacturing sectors are bringing signs of a slowdown in the American economy, but the unemployment rate remains very low, and financial conditions have been easing since September. A “soft landing” scenario is the most likely.

Until the Fed starts cutting rates again, the scenario is negative for cyclical commodities. We have a negative combination of the US, EU, and China slowing down at the same time, so we shouldn’t see much support for agricultural and energy commodities coming from the macro side until the end of the year. Additionally, the recent spike in grains and energy prices due to the escalation of the war can delay the monetary easing expected for the 1H of 2024.

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