In my previous piece last fortnight, I had said “the probability that inflation will come down on its own is low. This means if the central banks act harshly now, the markets will crash and then rally. If they are hesitant, the pain will be prolonged”. Well, on June 10, it was announced that US inflation, at 8.6 per cent in May, was at a 40-year high, causing markets in the US as well as India to crash. On June 15, the US Federal Reserve hiked the interest rate by as much as 75 basis points at one go but the hike did not generate the required confidence that inflation in the US would be easily tamed. The markets continued to decline. Investors are perhaps finally beginning to realise that this turbulent phase may be quite prolonged.
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