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Powell and Pain 💔

The markets continued to remain tepid last week too. In the past couple of weeks, the markets have lost 2%. Weakness has been seen across the globe, and India has been no different in the trend. Major reason? Jerome Powell’s speech.

What was in that speech?

  • Fed Chair Jerome Powell said he plans to keep increasing interest rates until inflation in under control; and that this could take a while

  • The previous inflation data had showed some cooling down, which got the markets soaring. But then the speech came in as a disappointment as Powell acknowledged pain ahead.

  • Despite some moderation last time, inflation in the US is still way above Fed’s target of 2%, and the Fed seems to prefer a temporary slowdown to spiralling inflation.

In a knee-jerk reaction, stocks slipped across US, Europe and Asia.

How long will the pain continue?

  • As long as inflation remains uncontrollable, and above Fed’s target of 2%

  • As long as the labour market in the US remains tight

Despite all the rate hikes, US job openings reached 11.2 million in July. To put that into perspective, this number is 1 million above estimates, and 2x the number of available workers.

When there are twice the number of jobs per available worker, workers are bound to have more bargaining power, get higher salaries, and this further fuels inflation.

Indian markets back to the same story

With the US going aggressive on rate hikes, we go back to the same narrative:

  • Quick and high interest rate hikes

  • Dollar strength

  • Struggle for the Indian markets

That said, it doesn't look all that bleak for India since it continues to be one of the fastest growing economies, and a legitimately good option for investors. That should provide some support to the otherwise negative global backdrop.

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