The US Federal Reserve can take a whole new approach – E24

– I think first and foremost of the Fed’s interest rate meeting as the most exciting this week, says Halfdan Grangård, investment strategist at Handelsbanken.

He is mostly involved in the active allocation of shares and securities internationally.

– Much of the turmoil we have had in the stock market and the bond market throughout the year has been driven by uncertainty and changes in expectations of what the Fed will do. Ukraine has also contributed, but the most important thing has been monetary policy, says Grangård.

“Fed” is the nickname of the US Federal Reserve (the Federal Reserve System), and they will set the key interest rate in the US on Wednesday.

– The strong and surprising growth in inflation has meant that the Fed has had to become more and more hawkish in its signals. Now they announce large interest rate movements, and we get another increase in the key interest rate of 50 basis points, says Grangård.

The key policy rate in the USA is currently 0.5 per cent. An increase of 50 basis points means that it can be 1.0 percent from Wednesday.

The last time the US Federal Reserve raised interest rates so much was 22 years ago.

– It is absolutely unusual. Usually you want to see how interest rate increases bite in the economy, and not be in such a hurry as they are now, says Grangård.

Printed money – now they will be deleted

Many also believe that the US Federal Reserve will begin with quantitative easing, the opposite of quantitative easing.

– It will be a start to slim down the balance. If they do, it will be a completely new territory, says Grangård.

No central bank has previously done anything similar on such a scale. While quantitative easing is that the central bank increases the money supply, quantitative restrictions are that the central bank erases money from the economy.

– The Fed has communicated that they will not sell what they have on the balance sheet. They should let the bonds they have mature, then not reinvest the money, but withdraw it, and then they slowly but surely withdraw liquidity.

Interest rate meeting at Norges Bank

Norges Bank will also have an interest rate meeting next week. On the other hand, this is an interim meeting, where a complete analysis and a monetary policy report are not presented at the same time.

– At such intermediate meetings, they usually do nothing unless they have to. We therefore do not expect any change from Norges Bank, says the Handelsbank economist.

At the previous interest rate meeting in March, Norges Bank raised the interest rate from 0.5 to 0.75 per cent, and adjusted the interest rate path more than ever.

– There is a high pace of interest rate setting, but it is likely that the interest rate hikes will come at the meetings with a full review, Grangård says.

“The most important number of the month” has changed meaning

On the last weekday of the week, the United States will present what during the entire pandemic has been referred to as the “most important number of the month”: the number of jobs created outside agriculture.

– There is reason to claim that the inflation figure has become more important, at least for the markets. It is always interesting to see where the labor market stands, but there is now more attention to wage pressures and how it leads straight into inflation, than there is attention to employment. It is a big change from the middle of the pandemic, says Grangård.

He believes that the recovery since the pandemic hit is more or less complete, with unemployment at about the same level as before the pandemic.

– The central bank has gone from being in the split between wanting to keep interest rates low due to high unemployment, at the same time as they wanted to raise interest rates due to high inflation. Now both conditions indicate that the Fed can raise interest rates, says Grangård.

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