Inflation protection motive and investment perspective

Fed rate hike and difficult conditions… Along with the economic background, on the contrary, the increase in bond yields and the strengthening of the dollar index create contradictory situations regarding the price trends. Talking about rate hikes for the Fed recently, basically explains the increase in bond yields, but it is worth remembering that the general ground is actually formed by expectations that deteriorated in inflation.


Investment perspective in the main policy phenomenon… When we look at the macroeconomic balances in the markets; We see that we have a high inflation phenomenon and a blurring global economic growth outlook. Normally, financial actors would sell gold when the Fed entered the market in anticipation of tightening. This time gold remained strong. It has become a safe haven as there is no other vehicle to go to in the markets. There can be many perception shifts in the movements in exchange rates. It depends on how financial actors look at it. There are many factors that can be multiplied, such as rate hikes, non-economic political factors, and the inflation effect of real incomes. If you look at inflation from the perspective that policy tightens and increases interest rates, you sell precious metals. However, if you look at the increase in the risk profile with the incentive to hedge against inflation, you will do the opposite. The current situation is almost similar. Global imbalances and increasing geopolitical risks may create an alternative investment perspective separate from the classical perspective in this period.


Economic infrastructure… Inflation, which continues to trend upwards at the level of 7% in the US, will be the main factor in the Fed’s persistence from tightening. Supply chain problems have caused serious inflation pressure in the general profile, and if these problems are not fully alleviated, the pressure and main trend in inflation will remain up for a while, and the expectations for the near-term forecast horizon will remain distorted. The phenomenon of normalization in monetary policy has gained serious weight recently with the perception that inflation may not be that temporary, and as of today, we are in the action phase. well; The Fed is moving from a very loose monetary policy to a tight monetary policy.


In fact, there are toxic effects that should be avoided in policy tightening. For example, the risk of implementation errors brought about by over-aggressiveness to cause a sharp turn in the economy. In fact, market expectations have become aggressive from the front, even though it wasn’t too much of a deterioration. If the Fed is not so aggressive, it will create a market-friendly tightening path, which is actually the most ideal transition scenario. On the one hand, the aim of controlling the aggression in inflation and on the other hand, the issue of the continuity of economic growth… While the Fed started to increase interest rates in March and implemented monetary tightening, it will not want to harm the economic growth balance and market stability.


Conclusion? Expectations from the FOMC meeting were very high before. Therefore, as long as there are no overly aggressive statements, a trend that will remain within the base expectation of the market can be perceived as positive. The basic truth will be that rate hikes should not have a slowing effect on the economy. While there is no additional setback that would require the Fed to be overly aggressive, the IMF’s downgrade of the global economic outlook based on weak US and Chinese growth could point to a less aggressive path in which increased downside economic risks will also be assessed. The Fed won’t back out much from its hawkish outlook, but it looks like it will take the rising risk balance into account as well. And indeed, that balance of risk creates the potential to set the stage for adjustment in portfolio allocations.

Kaynak Enver Erkan – Tera Yatırım
Hibya Haber Ajansı

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