Discussions about the recession in the United States are heated, and there are many concerns and worries. After all, the U.S. economy still holds the top position globally. Once the U.S. experiences a situation where economic recession and high inflation are intertwined, it will not only affect the domestic economy but also impact other countries around the world, especially emerging market nations.

The U.S. economy saw negative growth in the first quarter, and the outlook for the second quarter is even more pessimistic. The main factors affecting U.S. economic growth are still geopolitical issues, the global supply chain disruptions caused by the COVID-19 pandemic, and the U.S.'s embrace of trade protectionism, practicing a Cold War-era economic and political mindset, leading to self-isolation and self-weakening.

In the context of an economic slowdown, high inflation is rampant in the United States, and the Federal Reserve's inadequate response to inflation has been widely criticized. Federal Reserve Chairman Jerome Powell has decided to take a bold stance, resolutely shifting the focus of monetary policy to unreservedly suppress inflation. He even hinted that even if there is a slight economic recession, the inflation rate should be reduced to near the 2% target. This has accelerated the pace of the U.S. economy sliding into recession.

U.S. stocks closed slightly higher on Wednesday (local time, July 6). The Federal Reserve's meeting minutes indicated that if inflation does not decrease, the Federal Reserve may adopt "more stringent" policies, suggesting a possible 75 basis point rate hike in July. The market is watching for recession signals and the continuously falling crude oil prices. Brent crude oil broke below $100. The yield on the U.S. 30-year Treasury bond fell below 3% for the first time since May.

The trend of U.S. stocks mainly depends on the Federal Reserve's actions. The main change in the Federal Reserve's stance is how it plays out during the interest rate hike cycle. The trajectory of the Federal Reserve's interest rate hikes this year:

On March 16, 2022, local time, the Federal Reserve announced an increase in the target range of the federal funds rate by 25 basis points to between 0.25% and 0.5%. This was the first interest rate hike by the Federal Reserve since December 2018. The economic forecast report released at the meeting showed that the Federal Reserve could raise interest rates at all six remaining meetings this year.

On the afternoon of May 4, 2022, local time, the Federal Reserve decided to increase the U.S. federal funds rate by 0.5% (an increase of 50 basis points, or two code increases) to reduce the high inflation rate in the United States. After the rate hike, the federal funds rate range increased to 0.75% to 1%. This was also the first time in 22 years that the Federal Reserve raised interest rates by 0.5%.

On June 15, 2022, the Federal Reserve announced a 75 basis point interest rate hike, raising the target range for the federal funds rate to between 1.5% and 1.75%. This was the largest single interest rate hike by the Federal Reserve since 1994, demonstrating the urgency of controlling inflation.

On Wednesday (local time, July 6), the Federal Reserve released the minutes of the June monetary policy meeting. The content of the minutes showed that it is very likely that the Federal Reserve will raise interest rates by another 75 basis points in July. Since the decision to raise interest rates by 75 basis points in June, several policymakers have indicated their willingness to further intensify efforts at the meeting later this month to curb the largest inflationary pressure in 40 years. Federal Reserve officials emphasized the necessity of combating inflation at the meeting, even if it means that the economy, which is already on the brink of recession, will further slow down.As I have said many times before, the Federal Reserve's determination to combat inflation has become so strong that it disregards the risk of economic recession. If the Fed raises interest rates by another 75 basis points in July, the federal funds rate will be maintained at a level between 2.25% and 2.5%, just a step away from the 3% interest rate level. In addition, the Fed is reducing its balance sheet every month, directly withdrawing funds from the market. The quantitative tightening of the balance sheet, combined with the price tool of interest rates, the Fed's withdrawal of funds from the market is unprecedented. The direct impact is on the U.S. stock market, and indirectly affects global stock markets. More importantly, the continuous interest rate hikes have a significant impact on the economy, and voices in the market about the U.S. economy falling into a recession are rising.

Jeremy Siegel, a long-term bull on U.S. stocks and a finance professor at the Wharton School, said on Wednesday that the U.S. is "undoubtedly" in a recession, and if economic data continues to weaken, the Fed may not need to raise interest rates as much as the market expects. Siegel expects that the U.S. GDP growth in the second quarter will be negative for the second consecutive quarter, which meets the technical definition of an economic recession. This is basically consistent with my prediction.

On Wednesday, the Dow Jones Industrial Average rose by 69.86 points, or 0.23%, to 31,037.68; the Nasdaq Composite rose by 39.61 points, or 0.35%, to 11,361.85; the S&P 500 rose by 13.69 points, or 0.36%, to 3,845.08.

The futures price of West Texas Intermediate (WTI) crude oil for delivery in August at the New York Mercantile Exchange fell by $0.97, or 1%, to close at $98.53 per barrel, the lowest closing price since April.

Compared to the high settlement price of $123.70 on March 8, the U.S. WTI crude oil futures price on Wednesday has fallen by 20.3%.

The futures price for gold delivery in August at the New York Mercantile Exchange closed down by $27.40, or 1.6%, to $1,736.50 per ounce, the lowest closing price since September 2021.