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The number one priority for central banks is that a wage-price spiral does not break out. Hence, central banks indicate they will continue to fight inflation, even if it leads to a recession. As a result, we see the Fed and the ECB raising interest rates at a rapid pace in the coming months, but after that mounting recession fears will force central banks to change their attitude. This will cause a trend reversal in the interest rate, stock and currency markets.
In the last week, the White House, through the president himself and many other staff members, has desperately launched an offensive via a wide media palette to assure the public that “a recession is not inevitable,” in the words of Joe Biden himself. Will America avoid a recession?
The dollar bull market could continue for a while as the US economy is less vulnerable to rising energy prices and the Fed wants to raise interest rates faster than many other central banks. This will only change if mounting fears of recession lead to a Fed releasing the monetary brake pedal.
Markets are now probably becoming too pessimistic about US growth expectations. We expect US growth to remain strong enough so that the Fed will have to continue raising interest rates quickly for the time being. Probably faster and more than the ECB.