All in: The Fed has decided - going into recession

Raising the interest rate by 0.75 percent seemed a hallucinatory move until a week ago, but inflation data changed the rules of the game.

Psagot Investment House Chief Economist: "In our view, the US recession is much closer than expected and the dramatic downward update of growth forecasts is a very strong signal of that."

Walla!

Of money

16/06/2022

Thursday, 16 June 2022, 00:26

• Share on Facebook

• Share on WhatsApp

• Share on Twitter

• Share on Email

• Share on general

• Comments

  Comments

Just about half a year ago everything looked pink on Wall Street.

Cheap money flowed into the market, stock prices rose and the global crisis that knocked on the door seemed to make a U-turn.

But then inflation began to bubble, and yesterday (Wednesday) came the Federal Reserve's peak move - raising interest rates by 0.75 percent, the sharpest in 28 years.

"The markets have in recent days made a particularly rapid update of expectations and it seems to have been done rightly," says

. Would have seemed no less delusional to most investors.

However, recent inflation data change the rules of the game.

The Fed's forecasts have been significantly updated upwards, with interest rates now expected to be 3.4% at the end of the year and 3.8% at the end of 2023, compared with 1.9% and 2.8% respectively in March.

The long-term neutral interest rate forecast has been slightly revised upwards from 2.4% to 2.5%. "

More on Walla!

For the first time in about 30 years: US Federal Reserve jumps interest rate by 0.75%

To the full article

Where will it stop?

Fed President Jerome Powell (Photo: GettyImages, Drew Angerer)

Guy Beit Or (Photo: Rami Zranger)

In terms of economic activity, the Fed updated the expected unemployment rate to 3.7% at the end of 2022 and 4.1% at the end of 2023. In addition, the growth forecast was significantly updated down to only 1.7% in 2022 compared to 2.8% in the previous forecast in March.

The forecast has also been significantly updated downwards for 2023 to 1.7% compared to 2.2% in the previous forecast.

"We note that after retail sales data came out earlier, the Fed's second-quarter growth model was revised down from 0.9% to 0.0%. In our estimation, the US recession is much closer than expected and the dramatic downward update of growth forecasts is a very strong signal This is why, "Beit Or adds," through large short-term interest rate hikes and a signal to the markets that the economy is going to slow down significantly in the Fed lines, first of all, to lower inflation expectations significantly.

In our estimation, we are still right for another increase of 75 basis points and then beyond increases of 50 basis points.

We do not estimate from today that the cycle of interest rate hikes will end towards the end of the year and it seems that Fed members are increasingly inclined in this direction - in the latest forecasts they are signaling an interest rate hike of just another 40 basis points in 2023.

And in the end it was said - what they will suffice this year, is what will be - and next year they will already talk about interest rate cuts. "

• Of money

• Global money

Tags

• Jerome Powell