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- The historical rise in the interest rate to counteract rapidly rising inflation. The Federal Reserve has shown that it is determined to fight it
- This is the biggest interest rate hike. In the US since Alan Greenspan was chair of the Federal Reserve in 1994. In the last two meetings, the Fed has raised interest rates. by 25 basis points and 50 basis points, respectively.
- Expectations of further interest rate increases were also presented
- You can find more of this information on the Onet homepage
Although the market initially expected a 50 basis point rate hike, along with the Fed’s decision approaching, it was more and more in favor of seeing a 75 basis point rate hike.
For the Federal Reserve, this rally is unprecedented and shows how determined it is To combat inflation, its reading for May beat analysts’ expectations. The estimated preliminary inflation rate for the US CPI in May was 8.6%. every year. This is a slightly higher than expected result, as economists have assumed that the price index will rise by 8.2-8.3%.
The Federal Open Market Committee decided to raise the target range for the federal funds rate to 1.50-1.75%. Additional rallies in the target range are expected to be appropriate. In addition, the commission will continue the process of reducing its holdings of treasury, agency debt and mortgage-backed agency bonds. (…) The Committee is strongly committed to bringing inflation back to the 2% target.
– stated in the statement of the Federal Reserve.
CPI inflation was at its highest level since December 1981, in 40 years. Core inflation, that is, excluding fuel, energy and food prices (whose prices depend largely on external factors and to a lesser extent on monetary policy), reached 6% in May, slowing slightly from 6.2%. In April (5.9% expected).
on the other side, A strong interest rate hike may raise concerns about an impending economic slowdown in the US stock market. Which in turn will translate into European trading floors.
More customization
“In assessing an appropriate monetary policy position, the Committee will continue to monitor the impact of incoming information on the economic outlook, and the Committee is prepared to adjust its monetary policy position accordingly when threats arise that may impede the achievement of the Committee’s objectives. The Committee’s assessments will take into account a wide range of information, including readings. health. the public, labor market conditions, inflationary pressures and expectations, and financial and international developments. The Committee is strongly committed to bringing inflation back to the 2% target.” – added.
The Fed decided to raise the Reserve Excess Rate (IOER) by 75 basis points to 1.65%.
War makes the situation worse
According to the Federal Open Market Committee, the Russian invasion of Ukraine is putting additional pressure on rising inflation.
The Russian invasion of Ukraine caused enormous human and economic suffering. The consequences for the US economy are highly uncertain. The invasion and related events put additional pressure on inflation and weighed heavily on global economic activity. Additionally, the COVID-19 restrictions in China are likely to exacerbate disruptions in the supply chain. The press release also wrote that the committee pays special attention to inflationary threats.
Job growth in the US in recent months has been assessed as solid.
“General economic activity in the United States appears to have rebounded after the decline in the first quarter. Job growth has been robust in recent months and unemployment rates have remained low. Inflation remains elevated, reflecting supply and demand imbalances associated with the COVID-19 pandemic,” the press release said. Rising energy prices and increasing price pressures.
prediction
In June, the Federal Open Market Committee forecasts interest rates. In the United States, it increased by 3.4 percent. At the end of 2022, 3.8 percent at the end of 2023 and 3.4%. At the end of 2024. In March, the Fed predicted seven interest rate increases. By 25 basis points in 2022 and another three in 2023.
The median forecast for long-term interest rates, ie, the neutral rate was 2.5 percent in March. compared to 2.4 percent in March.
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