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Mild Recession expected to hit over the coming months as the Fed prepares for interest rate hikes


Welcome back viewers to our weekly article series where we bring you the latest news. Our topic today covers the outlook of the Federal Reserve members, statistics on inflation, Russia - Ukraine situation, and the gold price.

Federal Reserve

  • San Francisco Fed President Mary Daly indicates that the upcoming series of interest rates over the coming months could create a recession. 
  • Comparing current and historical inflation figures suggests that the US is experiencing the worst inflation in the last 40 years. The Fed indicates that interest rate hikes are expected to have "neutral" consequences, neither stimulating nor repressing growth.
  • Daly cites former Fed vice chair Alan Blinder, who asserts that in the previous 11 hiking cycles, "seven of which were followed by a mild recession or none, quoting a smooth landing". In a later interview, when asked whether a mild recession is considered a soft landing or an acceptable outcome, Daly comments the outlook is "to slow the economy into something below-trend growth but not into negative territory.
  • Wall Street economists Deutsche Bank and Gold Sachs forecasts a negative outlook over the next two years, all-seeing the rising recession risks.
  • The market still maintains that the Fed will deploy a series of aggressive interest rate hikes over the coming months. Beginning with 25 basis points in March and 50 basis points until a slowdown occurs, taking the benchmark fed funds to 2.5%. 
  • On Monday, St Louis Fed President Mr Bullard said that he wishes for the Fed to operate responsively with a 75 basis points move. However, traders believe that the drastic action will have no chance of happening. 

Russia - Ukraine Update

  • On Wednesday, Ukrainian officials indicated that the southern city of Mariupol could fall into Russian hands within "hours". Both countries have agreed to a humanitarian corridor to allow civilians to flee the port city. 
  • European Council President Charles Michel arrived in Kyiv despite fights persisting between the country's east and south. The president's arrival in Kyiv signifies "strengthening ties between Ukraine and the EU. 
  • Additional arms and fighter plane aid have arrived in Kyiv to aid the Ukrainians in control of Mariupol. Russia's control of Mariupol and separatist-controlled Donbas in the east would assist Russia in creating a southern corridor to the Crimean peninsula, depriving Ukraine of much of its coastline. 
  • Moscow has issued a request in the battle of Mariupol, calling for city defenders to surrender.
  • The situation in Mariupol is chaotic and horrible. As many as 2,000 people, primarily women and children, are without necessities.


  • Gold has rebounded slightly after hitting a low of $1,939/ounce on Wednesday as the US dollar weakens. 
  • The market has discounted the announcement made by the Fed on interest rate hikes. Investors are prepared for several scenarios, including a jumbo rate hike, balance sheet reduction, and aggressive hawkish guidance for the year, creating a fall in the gold price.
  • More information is to come as the Fed makes its announcement in May. 


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FX Street

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