05.07.202207:08 Forex Analysis & Reviews: The Fed does not assure a "soft landing" of the economy, so the future remains uncertain.

The major US stock market indices, Dow Jones, NASDAQ, and S&P 500, are still close to their recent lows and through a global correction. These three indices have lost 20 to 30 percent, which is unusual for them. For the NASDAQ index, this year has been the worst ever. The current year is the worst for the Dow Jones index since 1962 and the S&P 500 index since 1970. Therefore, if someone believes that the US stock market's decline in 2022 won't be as severe, we regret to inform them that it will be severe and possibly much more severe.

Additionally, the recovery of market indices and stocks may take years. In theory, the question is not how much the index and the market will decline in the end, but when the decline ceases, the recovery will start. We can attempt to tie the start of the recovery to the end of the Fed's monetary policy tightening. And this is when the issues start.First of all, nobody knows when the Fed will cease hiking interest rates. It is now thought that once inflation reaches a level of 3.5 percent, it will significantly slow down, allowing the Fed to loosen rather than tighten monetary policy. We must be aware, though, that such a result is by no means assured. According to our estimates, the battle against rising inflation could last between a year and two. What would happen if the Fed increased the rate to 3.5 percent and inflation decreased to 4 percent? If the Fed does not intend to raise the rate over 3.5 percent, how can we continue to apply pressure to this indicator? We want to emphasize that plans are rarely carried out precisely.

Furthermore, we would not make any predictions more than one or two weeks in advance, given the current geopolitical climate. The increase in energy prices was a significant factor in the growth of inflation globally. We do not rule out the possibility that the price of oil and gas will rise even further as ties between the West and Russia continue to deteriorate.

Second, a recession in the American economy is already imminent. Let's assume that it began, meaning that there was negative economic growth after a year. In this situation, it will be important to at the very least cut the rate while also stimulating the economy. If inflation approaches 2 percent at that time, and if not, when will it be at its highest? Again, we want to emphasize how challenging it is to forecast future GDP, inflation, and interest rates, for instance, over the next six months. Therefore, making predictions for such a long time is pointless. According to the Fed, there may not be a "soft landing" for the economy. Therefore, a recession is all but certain. And overcoming the recession is a challenge on par with dealing with inflation.