The Fed and the ECB will meet on May 3 and 4 respectively. The Fed is likely to increase the rate range to 5-5.25% per year and this will complete the monetary policy tightening cycle, said Mikhail Vasiliev, chief analyst at Sovcombank. “The dollar’s key rate of 5.25% is the level of 2008. In 2008, the American economy could not support the Fed rate of 5.25% and the global financial crisis broke out”, recalls the analyst. He predicts that the Fed’s tightening cycle will push the US economy into recession this year. This will likely help fight inflation and allow the Fed to cut rates by the end of this year. The ECB will raise the base rate by another 0.25 percentage points – up to 3.75%, and may also announce another rate hike at the next meeting in June, Vasiliev believes.
“A further tightening of financial conditions by the two main central banks increases the risks of a global recession and a financial crisis”, admits the expert. “A possible financial crisis in the West or a recession in the global economy is likely to lead to lower commodity prices and lower consumption. American and European consumers will buy less, and China will produce less. By the commodity channel, a potential financial crisis in the West will have an immediate impact on the Russian economy and Russian investors,” Vasiliev believes. But the Russian financial system and economy are largely cut off from the Western financial system, so a new potential global financial crisis will probably have less impact on us than in 2008-2009, the analyst believes.
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