“US Federal Reserve Raises Interest Rates and Signals End of Hike Cycle”

The Federal Reserve has raised interest rates another quarter of a percent, to 5-5.25 percent. That was what economists had expected. In the press release, she did not say a word about possible next interest rate hikes. That may be a signal that it will stop raising interest rates for the time being and that the current cycle of increases is over.

At the press conference, Governor Jerome Powell did not want to announce the end in so many words. He left the door open that the macro data could decide otherwise, but admitted that the tone has changed. “At the previous rate hike, we said we were anticipating even more rate hikes. We have now omitted that sentence from our communication.’ Yesterday’s interest rate increase was therefore the tenth in a row. Interest rates are now at their highest level since 2007.

For Powell, the US economy still shows two faces. ‘In the interest-sensitive sectors, we see that the higher interest rates are doing their job. We see a clear slowdown in the housing market and mortgages. Investments are also cooling down.’ In other sectors, interest rate hikes are felt with a year’s delay, according to Powell. On the other hand, there is still a labor market that, according to Powell, is extremely tight, with an unemployment rate of just 3.5 percent. ‘There are indications that the market is cooling down somewhat with somewhat lower wage increases and fewer vacancies.’ Another headache is that inflation is also still high. In the US, core inflation is still at 4.6 percent.

No rate cut

We should not immediately count on a rapid interest rate reduction, which some financial parties are counting on. “With the current high inflation, it would not be appropriate to cut interest rates quickly,” he said at the press conference. He remained silent about the American banking crisis. In particular, he said he was confident that the US banking system was healthy. He did warn politicians that a new block of the state is imminent, because there is no agreement on increasing the debt platform. “It would be very bad for the economy if the US government stopped paying its bills.”

The markets first went higher after the interest rate decision, but then fell. That Powell clearly ruled out a rapid cut disappointed some. Some think the Fed will cut interest rates as early as September, but that’s too early. We think it will be in the last quarter. But immediately by 0.5 percentage point,’ writes ING economist James Knightley in a comment. He was surprised that Powell was so unconcerned about the banks.