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The Fed's dramatic announcement - and the impact on Israel - Walla! Of money

2021-12-15T20:52:36.918Z


The Federal Reserve has announced it will accelerate aid cuts to the U.S. economy, and expects three rate hikes in 2022. Markets responded with gains, but the last word was not said


The Fed's dramatic announcement - and the impact on Israel

The Federal Reserve has announced it will accelerate aid cuts to the U.S. economy, and expects three rate hikes in 2022.

Markets responded with gains, but the last word was not said.

And how will this affect Israel?

Walla!

Of money

15/12/2021

Wednesday, 15 December 2021, 22:33 Updated: 22:47

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The Federal Reserve announced tonight (Wednesday) that it will accelerate the reduction of its aid to the U.S. economy.

The key decision is to accelerate the rate of reduction in bond purchases by $ 30 billion every month, twice the original plan. The Fed even hinted at three interest rate hikes next year, along with hikes in 2023 and 2024. Fed Chairman Jerome Powell said he would fight inflation, which today stands at close to 7 percent.

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Heavy and clear signal.

Jerome Powell (Photo: GettyImages, Alex Wong)

Guy Beit Or, Psagot's chief economist, explains: "As expected, tonight the Fed doubled the rate of quantitative easing from $ 15 billion to $ 30 billion, which means it will end in March. Beyond that, the Fed members aligned with the market and signaled tonight about 3 interest rate hikes during 2022 - a substantial change together to the previous forecast, in which the Fed members were divided half and half if at all to raise interest rates in 2022.



"As Powell hinted to us, Fed members have retired the word 'transitory' from the description of inflation, now focusing on the imbalance between the supply side and the demand side contributing to high inflation, but more reference to schedules. There is no doubt that the Fed is troubled by high inflation. Developments and in the world and in the US it seems that it will accompany us for quite some time to come. The statement also said that inflation in the US has been higher than the target for some time now.



"Markets reacted with rising yields mainly in the short and medium parts of the curve and the stock markets traded in a negative trend, turned green. Despite the positive reaction in the markets, it is hard to describe this post as an 'ionic' surprise, quite the opposite. "Significantly in the coming months (see consumer and small business confidence data as well as today's retail sales data), we do not see how ending the quantitative easing and raising interest rates as early as the first half of 2022 can be perceived as good news for stock markets. .

Construction is only growing - and inflationary pressures are also burdening Israel (Photo: Reuven Castro)

Guy Beit Or (Photo: Moshik Brin)

And what does this mean for us?



"Meanwhile in the Israeli sector, we are not really worried about inflation with a downward index with a decrease of 0.1%. What can we learn from this index? The situation is complex. This is the second month that we see the index downward, with errors In Israel, such as fruits and vegetables, travel abroad and accommodation and vacations in which volatility in the Corona crisis only increased. However, the downward trends certainly signal inflationary pressures being built up in the Israeli economy - whether it is the surprisingly upward housing section, furniture and household equipment prices that continue to soar or the indications from the producer price index that continue to rise at a particularly rapid pace. In our opinion, although we are after two lower than expected indices, inflation in Israel has not really said the last word, and in the end Israel will not be able to evade the significant inflationary trends in the world. "After all, tonight the Fed has significantly accelerated the termination of support programs just because it's so concerned about well - felt inflation in the US."And in most of the developed world. "

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Source: walla

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