So when inflation threatens to potentially destabilize the dollar, the Fed’s job is to take action. They have a number of tools at their disposal, but the most effective in this situation is to cool the economy by raising interest rates. With inflation in the United States now at 40-year highs, so is the Fed. Federal Reserve Chairman Jerome Powell announced last week that the Fed would raise interest rates by an aggressive three-quarters of a percentage point, the largest increase in 28 years. But he also expressed a darker tone than he had in previous meetings, acknowledging that some factors were beyond his control.
The Fed’s goal is to reduce the inflation rate to 2% while keeping the labor market strong, Powell said Wednesday, but “I think what’s becoming clearer is that a lot of factors we don’t control. will play a very important role in deciding whether this is possible or not, “he said. Commodity prices, the war in Ukraine and the chaos in the supply chain will continue to affect inflation, he said, and no change in monetary politics will not soften these things.
There is still a way to reduce inflation to 2%, he said, but this time it is increasingly being overcome by these external forces.
Powell’s speech largely contradicts reports from the White House, which emphasizes that the Fed is the chosen fighter against inflation in the United States.
Earlier this month, when economic data showed that inflation was still at its 40-year high and that consumer sentiment had fallen to a record low, the Biden administration outlined the role of the Federal Reserve in controlling prices.
“The Fed has the tools it needs, and we’re giving them the space they need to work,” said Brian Deese, director of the National Economic Council.
Last week, however, Powell was running another story. These ever-increasing gas and food prices, he said, are beyond his control. Appropriate monetary policy alone can no longer bring us back to 2% inflation with a strong labor market, he said.
“So much of it really doesn’t come down to monetary policy,” Powell said Wednesday. “The consequences of the war in Ukraine have led to soaring prices for energy, food, fertilizers, industrial chemicals, and only supply chains in general, which have been bigger – or longer-lasting than expected.
Mark Zandi, chief economist at Moody’s Analytics, agrees. “The main culprit [of inflation] there were higher energy prices, especially gasoline, and much of that can be traced back to Russia’s invasion of Ukraine, sparking a spike in world oil prices, “he said in a recent episode of his Moody’s Talks podcast. to calm down as the pandemic subsides and the market adjusts to new sanctions against Russia, he added.
It is difficult to say whether raising interest rates will help curb the spread of inflation, or is it too little, too late. Powell seems to be hedging. “I think the events of the last few months have increased the level of difficulty, created great challenges,” Powell said. “And now there’s a much better chance it depends on factors we don’t control.”
$ 5.7 billion is at stake in Europe
Some wealthy Americans like to vacation in Europe. The richest man in Connecticut prefers to make multibillion-dollar bets on the economic future of the old world.
Ray Dalio’s Bridgewater Associates is betting nearly $ 6 billion that European stocks will fall. This makes the world’s largest hedge fund the largest short seller of euro stocks.
In total, Bridgewater has 18 active short bets against European companies, including a $ 1 billion position against semiconductor company ASML Holding and a $ 752 million stake against oil and energy company TotalEnergies SE.
This is not Bridgewater’s first rodeo. Dalio has not been on the side of Europe for some time. In 2020, Bridgewater pledged $ 14 billion against shares there, and in 2018 they built a short position of $ 22 billion against the region.
Why? Bridgewater is quite sad about his overall strategy for the euro as a whole, but some clues emerged from an interview Dalio gave to the Italian newspaper La Repubblica last week. He explained that Bridgewater stays away from countries at risk of internal conflict or international war. He also said he was worried about central banks’ attempts to deal with high inflation and expected the economy to deteriorate soon because of them.
In short, it is short because of the war in Ukraine and the hawk policy of the European Central Banks.
But maybe it’s a battle for world order. One thing Dalio is not ashamed of is to share his broader worldview. In a series of blog posts on LinkedIn, he explained why he believes the United States is rapidly turning to civil war and how the global world order is changing.
“The dynamics of Russia-Ukraine-USA-other countries is the most eye-catching part of the changing dynamics of the world order that is underway,” he wrote. But in essence, this is only the first battle in what will be a long war for control of the world order.
It is possible that Bridgewater, which has assets of $ 151 billion, is betting that Europe will not get out of the war at the top.
For now, this bet is being paid. The company posted a 26.2% gain on its leading fund Pure Alpha this year, while the S&P 500 lost nearly 24%.
The STOXX Europe 600, a broad index that measures the European stock market, has fallen about 17% since the beginning of the year.
Next
Monday: June 16, markets closed in the United States.
Tuesday: Existing home sales for May.
Wednesday: Federal Reserve Chairman Jerome Powell will testify about the economic prospects in Washington.
Thursday: Initial unemployment applications; The Crude Oil Inventories of the Energy Information Administration (EIA).
Friday: Sale of a new home for May.
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