For the fourth time in a row: the Fed raised interest rates by 0.75% Israel today

Today (Wednesday) the central bank of the USA raised the interest rate by a sharp rate of 0.75% to a range of 3.75%-4%. This is the fourth increase in a row designed to curb inflation in the USA, which continues to be very high despite a certain moderation recorded in the last month and stands About 8.2% on an annual basis.

The latest forecasts in the interest rate market say that interest rates in the US will reach a level of 5% in 2023 - more than the central bank's own forecast. We note that although the US economy expanded by 2.6% in the third quarter, most preliminary indicators indicate that it may go into recession next year.

The Chairman of the Federal Reserve Bank, Powell, said at the press conference that it will be necessary to raise the interest rate to higher levels compared to what the central bank estimated in September, but due to the fact that a relatively tightening policy has already been introduced, the rate of interest rate increases will slow down. Powell was asked if a "soft landing" is still possible And he replied that the probability of this continues to decrease, and has been decreasing for the past year, although it is still possible.

In the meantime, the US stock market reacted with sharp declines to the interest rate hike and Governor Powell's announcement. The Nasdaq index fell by 3.4%;

The Dow Jones closed down 1.6%, and the S&P fell 2.5%.

The decline in inflation is delayed

According to Guy Beit-Or, the Chief Economist of Psagot Beit Investments, "The Federal Bank would have expected to see a decrease in inflation by now, but it is not really happening yet, at least not to the extent they wanted to see. Due to the fact that the inflation picture is acute, the interest rate increases will have to be more significant And therefore the ability to escape a recession is smaller. At least in our estimation, and not as of today, a significant economic recession in the US is inevitable." 

And what about Israel?

Beit-Or says that "although the inflation environment in Israel is lower compared to other countries, it is still high, and the inflationary risks to the Israeli economy continue to be very significant. The recent interest rate increases in Europe, and now in the United States, are expected to give more wind to the Bank of Israel, which is expected in our estimation to raise the interest rate by another 0.75% to the level of 3.5%".

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