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Uday Kotak expects Fed Chair Jerome Powell to ‘break the back of’ US inflation


Uday Kotak took note of Federal Reserve Chairman Jerome Powell’s signal that the Central bank would raise interest rates further to tame sky-high inflation. Powell has cautioned that, when the Fed raises interest rates to combat excessive inflation, Americans will experience a difficult period of poor economic growth and possibly increased unemployment.

Also Read: Powell’s 8 minute speech erases $12 billion from Elon Musk, Jeff Bezos’ wealth

It reminded Kotak of Paul Volcker, who “who broke the back of US inflation in 70s/80s”. The billionaire banker posted on Twitter, “Watch out for Quantitative Tightening ( QT). US rules the financial world. Opiated markets will wake up and smell the coffee! (sic).”

The Fed declared in May that it would implement QT in addition to hiking the federal funds rate. Due to the Fed’s QE initiatives to address the 2008 financial crisis and the COVID-19 pandemic, the balance sheet grew to approximately $9 trillion.

Also Read: How Indian stock markets may react on Monday after Fed chief comments spark selloff

In his speech last week at the Fed’s Jackson Hole conference, Powell noted that restrictive monetary policy may be necessary for a while to combat high inflation and advised against prematurely easing monetary conditions. He also foresaw the possibility of economic hardship for both people and companies.

On August 29, US equity futures fell alongside Asian stocks when Jerome Powell, the chairman of the Federal Reserve, used hawkish language that caused Wall Street to plunge and increased the value of the dollar. Contracts for the S&P 500 and the tech-heavy Nasdaq 100 fell more than 1%, while bourses in Australia, South Korea, and Japan saw losses of about 2%.

Also Read: Chris Wood says the Indian stock market’s resilience has surprised him

As investors process Federal Reserve Chair Jerome Powell’s tough message that interest rates are going higher for longer in a hard struggle against inflation, losses are expected for Asia’s stock market on August 29.

The yen, the pound, and the offshore yuan were all under some pressure as a barometer of the dollar was driven toward a more than one-month high. The US two-year Treasury yield reached its highest level since 2007 as a result of bond sales. The US yield curve’s continuing inversion highlighted the recession expectations on the bond market.

(With agency inputs)

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