Friday, December 2, 2022

Fed expects a new half-point rate hike this December

The US Federal Reserve (Fed) plans a new rise in interest rates before the end of the year, which will presumably be smaller than the previous ones, 50 basis points.

This was revealed this Wednesday after the publication of the minutes of the last meeting of the Federal Open Market Committee (FOMC) of the Fed held at the beginning of November, in which the participants considered that there will be an increase of 50 points basics in their meeting scheduled for this month of December.

The attendees “focused increasingly on the question of when the Committee could reduce the pace of future increases, in light of the substantial tightening of financial conditions that has occurred during the year,” says the Fed in the document published today.

On November 2, the regulator announced a new increase of 0.75 points, the sixth consecutive increase since March, in a new attempt to control inflation. The official interest rate of the world’s largest economy moved to a range between 3.75% and 4%, the highest level since January 2008.

As anticipated then and confirmed today, several of the participants observed that, as monetary policy approaches a sufficiently restrictive stance to achieve the Committee’s objectives, “it would be appropriate to reduce the rate of increase.”

Also, many participants commented that there was great uncertainty about the final level of interest rates and that this limit will depend on the next economic data, although it will probably be “somewhat higher than what they had previously expected”.

The president of the Fed himself, Jerome Powell, warned him in the press conference after the last increase announcement: “The data received since our last meeting suggests that the final level of interest rates will be higher than previously expected” , he claimed.

The members of the Fed’s Federal Open Market Committee – which is made up of the seven members of the Board of Governors, the president of the New York Fed and four other regional Fed presidents who rotate each year – are the ones who decide whether to raise rates.

They meet about eight times a year to discuss the country’s monetary policy. The next and last of this exercise will take place on December 13 and 14.

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