October 6, 2022

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US and Fed “tighten” 75 basis points, interest rates are at more than 4.50%

A new interest rate hike of 0.75 percentage point took place. A sign of new highs, and above all, expect a tightening that is faster and more intense than envisaged in June. These are the indicators that emerged at the September meeting of the Federal Reserve.

The Federal Open Market Committee (FOMC), the Federal Reserve body responsible for monetary policy in the United States, announced a 75 basis point rate hike to 3-3.25%, a level not reached by 2008. This is a rate hike For the fifth consecutive time, the third in a row of 75 basis points. In March, the US central bank announced its first rate hike (by 25 basis points) since December 2018.

The rise was expected, and the diagnosis of the state of the economy that appeared in the statement changed little: above all high inflation, low unemployment, even if spending and production, considered weak only in July, now appear to be in modest growth.

What really changed the picture were the “scores,” which are the pointers to the rates trajectory given by each of the governors. In June, median estimates pointed to a year-end arrival point of 3.25-3.50%, slightly above the current level. Now the consensus measure instead points to 4.25-4.50%, which corresponds to at least another increase of 75 basis points plus one from 50 at the November and December meetings.

For the next year, the Fed envisions raising rates a little higher, in fact: to 4.50-4.75%, which is nonetheless 3.75-4% higher than the June forecast. Therefore, what is being proposed today is not only an acceleration of the narrowing but also an increase in what could be considered an estimate of the final rate. President Jerome Powell said at a press conference that it would now be important for the entire real yield curve to reach positive values. For 2024, on the other hand, the Fed envisions the start of normalization, with year-end rates at 3.75%-4% (from 3.25-3.50% indicated in June), to pass in 2025 to 2,75-3%. The long-term interest rate, an indication of the neutral rate or central bank target, was confirmed at 2.5 per cent.

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