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Fed: the pressure from investors and politics is increasing

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Fed: pressure from investors and politics is on the rise

by Massimo Intropido

The next few hours will be very delicate for the Fed, because it probably won’t raise interest rates, but so far it looks like it will in March.
But will it really? The doubt is legitimate, because in the last ten days not a single piece of news has been favorable to the occurrence of such a scenario.

THE stock markets, especially the American ones, they are collapsed as we have not seen since the sad March of 2020. The technology sector, where there seems to have been an authentic run-off from “unicorns”, that is, from those companies that are placed on the stock exchange already worth at least 1 billion dollars.

There seem to be almost a thousand in the world today start-up whose value exceeds a billion dollars and for this reason they are defined as unicorns. But the value of these companies could represent a new one bubble, because their proliferation in recent years has been incredible, as well as the fact that today it is not start-ups that are looking for investors, but they are the ones who are looking for new ideas to finance.

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The problem is that these companies often they don’t make any profits yet, sometimes not even when they reach a billion dollars in value. If rates rise quickly, their debts could explode. This is what is triggering the flight of investors.

Many managers of funds are losing more than indices, because they have these companies or similar companies in their portfolios. So they put pressure on on the Fed so that the cost of money does not increase. Like this BlackRock, one of the largest managers in the world, declares in no uncertain terms that: “central banks have to choose between inflation and growth“.

But the grievances that matter are not just these. Last week, in fact, none other than the Chinese leader Xi Jinping stated in no uncertain terms that “if major economies abruptly step on the brake and put a U-turn on monetary policy, then there will be problems, and emerging countries will pay“.

But that is not all. The International Monetary Fund also sent a warning to the Fed on Friday, reminding it that a tightening on the cost of money could “throw cold water“On the already weak economic recovery in some countries, even at a time when global debt reached $ 226 trillion in 2020, the largest increase in a year since World War II.

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Hence the heavy names of politics and international finance move, all declaring in unison that the increase in interest rates must not be there for now. And that’s that. Moreover, the prospects for world economic growth have also been cut and the tension over the Ukrainian question is skyrocketing. So, no jokes Mr. Powell!

At the end of the year, some managers went so far as to say that the Fed will have a major credibility problem, i.e. it will have to face the dilemma between fight inflation, doing his homework, or avoid dropping bags further e slow down the economy, proving to be hostage. In the last hours the second scenario takes strength.

Especially since Powell could solomonically justify himself by saying that the data on American inflation are not yet sufficient to raise rates. It wouldn’t be true, but it would be one excuse me honorable. After all, this time the speculative attack by the markets could have started precisely against the Fed.

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