A very important thing markets are ignoring is that Fed has clearly told that terminal value will definitely be higher even if the incremental increases in the interest rates are lower.
What does this mean
1. There will be increments
2. Individual increments will be lower
3. Terminal Value will be higher than previously expected
The current inflation is sticky and its not going to go away very soon. Even if we assume that 50bps will continue for only 2-3 months from next month, there is a high probability that 25bps may continue for a bit longer.
There are high chances that the 1-year Treasury rates will be greater than 7%. This will be a dangerous scenario for the market.
For India, this will be a scenario where FIIs will find it hard to stay in India with such attractive returns at home.
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