We are eagerly waiting: the Chairman of the Federal Reserve Bank of the USA, Jerome Powell, will announce tonight the level of the interest rate in the USA. The interest rate market predicts that the interest rate will rise for the third time in a row by a sharp rate of 0.75%, to a range of 3.25%-3%, With about a 20% probability of a 1% increase. The high rate of increase is intended to curb rising inflation in the US, which stands at 8.3% per year.
According to estimates, interest rates in the US will rise to 4.5% at the end of the first quarter of 2023.
The decision of the central bank officials will be influenced by the inflation data, which surprised negatively last week - when fuel prices did continue to fall, but core inflation (excluding energy and unprocessed food) rose sharply in August - 0.6%, compared to the expected 0.3% following the increase in the prices of goods and services.
Towards a long struggle
The high interest rate makes mortgage payments and loan repayments more expensive, thereby reducing disposable income and slowing the economy's economic growth.
A long struggle awaits Powell - on the one hand to moderate the rising inflation, and on the other hand to prevent the entry of the largest economy in the world into a prolonged recession.
Senior officials of the Federal Bank recently clarified that the interest rate "will remain at a restraining level for a period of time", although the move involves "pain" for households.
The internalization of the markets that inflation is still here and that the interest rate is going to rise at a dramatic rate, led in recent weeks to a sharp increase in bond yields in the US - a fact that greatly clouded the stock markets.
Also in Israel the interest rate is expected to jump next month by at least 0.5%, and according to some economists - by 0.75%.
If you take into account the fact that the annual inflation rate in Israel (4.6%) is almost twice as low as in the US, the question arises - why is the interest rate rising at a rate similar to that in the US?
Besides the intention to curb the burning real estate market in Israel, one of the explanations for this is that inflation in Israel stems from global factors, and therefore the Bank of Israel is also affected by what is happening in the US.
Also, the Bank of Israel is apparently also trying to maintain the interest rate differentials between the dollar and the shekel so that they do not widen too much, because if the interest rate on the shekel did not rise at a sharp rate - the shekel would weaken, which would increase the inflationary pressures even more.
We are next in line
"The interest rate hikes in the US and the sharp rise in yields led to an increase in interest rates in Israel as well and an increase in market expectations regarding the future interest rate in Israel," explains Modi Shafferer, chief financial markets strategist at Bank Hapoalim, in a conversation with Israel Hayom.
"The interest rate market estimated on Friday that the Bank of Israel interest rate will rise in the coming months to about 3.55%, with a 50:50 chance of an interest rate increase of 0.5%-0.75%, a fact that will lead to a sharp increase in the prime interest rate, and hence is also expected to lead to an increase in loan and mortgage payments" , adds Shaffer.
"If the market is indeed right and the interest rate will rise to about 3.5% in the coming months, then the meaning of this is that the prime interest rate will rise to 5%."
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