In fact, the core index (which excludes food and energy) trended upward, hitting a record 6.6% last month, which indicates that more and more sectors of the economy are affected by price increases.
The market takes for granted another increase of 75 points, an aggressive range of increases that the FED, prior to this year, had not had since 1994.
If materialized, the interest rate will be in a range between 3.75% and 4%, and the FED will accumulate an increase of 375 basis points since it began raising its rates in March, a record since the 80s .
With the focus on Powell
The question of the meeting, however, will be the tone that Powell will have in his speech scheduled for today afternoon, which will define the expectations about which path the FED will follow in the next meeting in December and whether or not the entity will start to slow down its pace of rate hikes.
In September, Powell reaffirmed that the FED’s objective is “to reduce inflation to 2%”.
Likewise, although he reiterated that the intention is to achieve a “soft landing” in the economy, that is, to slow it down without causing it to shrink, he admitted that, if the entity continues with its aggressive policy, “a recession is possible” and that increase unemployment.
Likewise, Powell repeatedly cited his predecessor, Paul Volcker, who, with a “shock” policy at the beginning of the 1980s, increased interest rates to 22%, which, although it curbed inflationary expectations, led the country to to two brief recessions.
Volcker’s policy pushed inflation down from near double figures to less than 5% a year, a barrier the United States did not break between 1983 and this year.
What do economists think?
According to a group of economists consulted by the Bloomberg agency and Goldman Sachs bank estimates, the FED will aim for the interest rate to reach 5% by March of next year, with increases that will slow down to half-point increases in December. and a quarter point in the next two monetary meetings.
“Inflationary pressures remain intense and the Fed braces for another 75 basis point hike,” said James Knightley, chief international economist at UK bank ING.
Economists agree that the Fed may be raising rates too high, and expect that, in response to slower growth and inflation, it will begin to cut them as early as the second half of next year.
“The lag of monetary policy effects is underestimated. The current tightening may not be felt until mid-2023,” explained Thomas Costerg, an economist at Pictet Wealth Management.
In addition to raising rates, the Fed is expected to continue its reduction of bond holdings and its balance sheet, with an estimated asset shedding of $1.1 trillion a year.
Source: Ambito
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