At its June 14-15 meeting, the Federal Reserve decided to hike its Fed Funds Rate by 75 basis points, the largest single hike since 1994, to 1.5-1.75% in order to tame inflation.
In addition, the Fed downgraded its economic growth projection and raised unemployment and inflation rate projections significantly, hinting there will be a substantial hikes to tame continued inflation.
We believe the 75 bps hike and further substantial hikes will create a ripple effect worldwide and cause financial crisis and/or recession in the US, Europe and emerging markets. The magnitude depends on the level of inflation and the monetary policy tightening to tame that inflation.
To compare the current stage of stagflation with the 1970s era, we studied the development of the US consumer price…
