© Reuters
Investing.com – US Federal Reserve announced decision to increase 75 basis points from 3.25% to 4.00%, with eyes on US Federal Reserve Chairman Jerome Powell’s speech at press conference , which will take place in 30 minutes from now.
Experts with a majority above 88%, according to the Fed’s interest rate tool, were hoping the Fed would raise interest rates by 75 basis points, but what should be clarified by Jerome Powell is whether the Fed will continue to raise interest rates, or it will change its monetary policy.
Glimpses of the US Market Committee report
All Fed members opted to raise interest rates by 75 basis points at the November meeting, and the Fed hinted in its report that the pace of rate hikes could slow down in the coming year.
Markets now
The American fell 0.64% to 110,610 against a basket of foreign currencies, while the US market indices were up 0.31%, the Dow Jones index by 0.89% and the US market index. 0.67%.
Gold futures rose 0.95% to $ 1,664.40 per ounce.
Summary of the text of the Commission report
The Federal Reserve on Wednesday approved a fourth consecutive three-quarter point hike in interest rates and signaled a potential shift in the way it manages monetary policy to reduce inflation.
In a move that markets have been waiting for weeks, the central bank raised the short-term borrowing rate by 0.75 percentage points to the target range of 3.75% -4%, the highest level since January 2008.
The move continued the more aggressive pace of monetary tightening since the early 1980s, the last time inflation reached this high.
Along with the anticipation of a rate hike, the markets were also looking for language to suggest that this could be the last move of 0.75 pips or 75 bps.
The new statement hinted at this policy change, stating that the Fed “will take into account the cumulative tightening of monetary policy, the delays with which monetary policy affects economic activity and inflation, and economic and financial developments.”
Economists are hoping this is the much talk of “resignations” in politics that could see a half-point hike in prices at the December meeting and then some small hikes in 2023.
This week’s statement broadened the previous language by simply stating that “continuous increases in the target range will be appropriate”.
The new language reads: “The Committee expects that continued increases in the target range will be appropriate in order to achieve a sufficiently restrictive monetary policy stance to bring inflation back to 2% over time.”
Markets looks forward to President Jerome Powell’s press conference at 2.30pm. For greater clarity, the Fed believes it can implement a less restrictive policy that includes a less dramatic level of rate hikes to meet its inflation targets.
In addition to revising the statement, the FOMC again rated expenditure and output growth as “modest” and noted that “job gains have been solid in recent months” while inflation is “high”. The statement also repeated the wording that the committee was “extremely concerned about the risks of inflation”.
The rise in prices comes as recent inflation readings show that prices are still close to the highs of the last 40 years. A historically rigid labor market, with about two opportunities for every unemployed worker, drives up wages, a trend the Fed tries to avoid as it restricts the money supply.
Concerns are growing that the Fed, in its effort to lower the cost of living, will also push the economy into recession. Powell said he still sees a path to a “soft landing” without strong deflation, but the US economy has shown virtually no growth this year even though the full impact of higher interest rates has yet to begin.
Meanwhile, the Fed’s preferred inflation indicator showed that the cost of living rose 6.2% in September compared to a year ago – 5.1% even excluding food and energy costs. Gross domestic product declined in both the first and second quarters, in line with a common definition of a recession, although it rebounded to 2.6% in the third quarter, mainly due to an unusual increase in exports. Meanwhile, house prices have plummeted as 30-year mortgage rates have soared to over 7% in the past few days.
On Wall Street, markets have rebounded waiting for the Federal Reserve to start rolling back as concerns over the long-term impact of higher interest rates grow.
It has gained over 13% in the past month, partly due to a not as bad earnings season as feared, but also amid growing hopes of a Fed policy recalibration. Yields have also fallen from higher levels. since the early days of the financial crisis, although they have remained high. The most recent 10-year reference document was around 4.04%.
There is little, if any, expectation that interest rate hikes will stop soon, so forecasts are moving at a slower pace. Futures traders are considering an opportunity close to a half-point higher currency exchange in December for another three-quarter point move.
The current market price also suggests that the federal funds rate will approach 5% before rate hikes stop.
The federal funds rate determines the level that banks charge each other for overnight loans, but it flows into many other consumer debt instruments such as adjustable rate mortgages, auto loans, and credit cards.
