Economic “Hurricane”: Here’s a Take on a Bank CEO’s Warning
Here’s what reached a nadir as the war in Ukraine broke out
by Bob Stokes
Updated: June 07, 2022
On June 1, a CNBC headline said:
[Major bank CEO] says 'brace yourself' for an economic hurricane caused by the Fed and Ukraine war
Yes, the U.S. central bank is engaging in so-called "quantitative tightening" and the war persists in Ukraine.
Yet, those cited "causes" of a possible economic "hurricane," like a severe recession or even a depression, are results themselves. For instance, the war in Ukraine resulted from a shift in social mood -- going from positive to negative.
The April Elliott Wave Theorist drives the point home regarding the war in Ukraine with this chart and commentary:
The outbreak of the war coincided not with the start of a decline in U.S. stock prices, as so many investors feared it would, but the exact low prior to a rally that persisted throughout the fighting. The rally is not due to the bizarre formulation that war is bullish; it is due to natural waves of social mood that had reached a nadir when the war broke out.
Regarding Fed tightening as a contributor to a possible economic crisis, realize that the Fed merely follows the market, it doesn't lead. In other words, investor psychology is the true cause of the rise in rates.
Interest rates (or bond yields) began to rise well before the Fed started to raise its fed funds rate this year.
Fed officials voted to start lifting rates on March 16. Yet, the yield on the 10-year Treasury note bottomed back in 2020 and has been climbing since.
Of course, rising bond yields mean lower bond prices.
Getting back to the economy, the 1.4% decline in U.S. GDP in Q1 was recently revised downward to 1.5%, so an economic contraction may already be underway.
Plus, our recently published June Elliott Wave Financial Forecast mentions a specific "economic quagmire to watch."
The Elliott Wave Financial Forecast and Elliott Wave Theorist are part of our flagship Financial Forecast Service, which you can access by following the link below.
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