Why US FED (Central Bank) can’t stop high inflation and recession?

Why US FED (Central Bank) can’t stop high inflation and recession? Since the time some big banks in USA like Silicon Valley Bank (SVB) and Signature Bank have failed, majority investors and fund managers are betting that US FED would pause interest rate hikes and even may start reducing interest rates by the end of 2023.

I believe that US FED can’t stop high inflation and subsequent recession due to various factors.

1️⃣ First of all, the latest surprise crude oil production cut of appx. 1.1 mn barrels per day by OPEC+ has busted the balloon of those optimists who believed that USA’s inflation is slowing down and the pace of economic slowdown is muted allowing US FED to go for pause. Because even before this production cut, inflation was persisting at 6% p.a.which is much higher than the comfort level of 2% announced by US FED. Now with crude oil price increasing by 10% with the announcement of production cut, inflation will only go up.

2️⃣ Second, even assuming that US FED would opt for pause but with increasing and persistent sticky inflation, it may not be in position to go for interest rate reduction as day dreamed by few people and so corporate earnings will continue to be in declining trend even for 2024.

3️⃣ Thirdly, the current regime of Democrats in USA is running more leftist and socialist agenda which makes it difficult for the government and Central Bank to announce interest rate pause or cuts as it will alienate its core constituency of poor and middle class people. Because this will be viewed as pro- business and pro- rich as it will be assumed that government does not care for people and this can be detrimental for its electoral prospects in 2024.

Lastly, chickens come home to roost as too much loose monetary policy and fiscal profligacy by USA government post Covid pandemic has led to the disastrous path of high inflation and bank failures. As such, US Dollar is losing faith of investors as well as its safe heaven status as investors have started shifting from USD to gold and crypto currencies.

So, I believe that we will see short term rally in the global market till 3rd May when bubble will be busted by US FED regarding optimism of inflation, interest rate cut and economy. Ultimately, they will have to accept that economy is spiraling downwards towards recession and few more banks and financial institutions have to be allowed to fail naturally in order to stabilize the situation. So my view is that this month’s short term rally would be followed by steep and long correction in the stock market?