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Investing.com – The US Federal Reserve announced an interest rate hike by 50 basis points after meeting for two days to decide US monetary policy for the rest of the year and next, as CPI data lagged in last two months.
Thus, US interest rates jumped from 4.00% to 4.50%, a 50 basis point increase after a string of 75 basis point rate hikes in recent meetings this year. This drove interest rates to their highest level since 2007.
While markets were preparing for this hike, the utmost importance is focused on what the Fed will do about its policy next year and its interest rate target in 2023.
The most important thing in the federal declaration
Fed members expected US economic growth (Gross Domestic Product) to increase 0.5% at the end of 2022, 0.5% in 2023, 1.6% in 2024 and 1 .8% in 2025.
Fed members also see an increase in the unemployment rate, which reaches 3.7% at the end of 2022, rises to 4.6% in 2023, continues at 4.6% in 2024 and begins to decline to 4.5 % in 2025.
interest forecast
The interest rate forecast for the fourth quarter followed the first year at 5.1%.
And the fourth quarter of the second year at 4.1%
And the fourth quarter of the third year at 3.1%
While interest rate expectations were currently at 4.4%.
The long-term interest rate forecast is 2.5%.
Markets after the Fed’s decision
It’s down and is close to losing 1% to be exact, it’s down 0.75% as of this writing, following the issuance of the US Federal Reserve’s decision and statement.
While it lost 0.9% of its value, registering $23.802 an ounce
US market indexes fell following the Federal Reserve’s statement, as the Nasdaq fell 0.54%, 0.28% and the S&P 500 fell 0.49%.
Oil was up 2.39% to $77.2 a barrel and oil was up 2.43% to $82.67 a barrel.
Interest increase, for how long?
Analysts agree that the key is knowing how far the US central bank plans to raise policy interest rates before halting hikes.
“Their intentions can be inferred from what the various FOMC members are indicating on a dot chart, as they plot how they expect policy interest rates to perform over the next few years. It will also be interesting to see the new macro chart released by the Fed To see how the growth and inflation forecasts managed by the institute’s analysts have evolved in recent months”, according to a commentary by Link Securities.
“We will wait for the update on GDP and inflation expectations and the expected upward revision of the point chart, and we will compare it with the previous revision, in September, which indicated a rate ceiling at 4.6%, when Powell had already declared that it would be something miraculous”, they note in Renta4.
As these analysts explain, “The market is pricing in further hikes to its 4.75%-5% target in the first half of 2023, with the Fed willing to sacrifice more growth and jobs in exchange for price controls.”
For their part, in the daily market report, Bankinter analysts commented that “the scenario that investors are ruling out is that the final interest rate is 5% and that the next increases are +25 basis points. of 2023 there could actually be the first cut in the interest rate, we will see if this scenario will change after Powell’s intervention”.
Can the Fed calm the market?
In Renta4 they state that “in their latest forecast (September), the inflation estimated for 2023 remained above the target (2.8% against 2%) and then moderated to an estimated 2.3% in 2024, while the GDP forecasts for 2023 were lowered to 1.2% before recovering to 1.7% in 2024. They added: “We do not expect interest rate cuts and a return to neutral levels (3%) until until inflation is under control in (2024) Therefore, we expect a bit aggressive rhetoric (high interest for a longer period) which could calm the markets. Especially after the recent sharp rises (equity markets are up +17% since mid-October, with a yield of -75 bps to 3.5%). and bond market,
In the end, Bankinter experts say: “Inflation in services is the Fed’s main concern. The Fed must continue to raise interest rates to slow demand and maintain growth to restore balance and control inflation. The decision to adjust the pace of increases does not mean that the fight against inflation will be eased”.
