In his statement, the Fed increased its quarterly projections and detailed a terminal monetary policy rate of 5.6%, 4.6% and 3.4% in 2023, 2024 and 2025respectively, above the 5.1%, 4.3% and 3.1% projected in March.
For this reason, the data was not entirely well received by the market. Although, as expected, the Federal Open Market Committee did not raise the monetary policy rate, nor did it plan to lower it towards the end of the year, but raised the projections.
“In principle there was a quite important reaction of rising short rates, especially due to the impact generated by the change in the expectations of these terminal interest rates of the Fed. From the projections at the end of March to those of June, they raised the expected rate by the end of the year quite a bit, and that began to reduce the expectations that this year there will be a drop in rates, “he explained to Scope Pablo RepettoHead of Research at Aurum.
In this sense, he classified the market’s view as “complacent” and “optimistic” because inflation, despite falling, is still well above the FED’s target of 2%, since in April it closed at around 4%.
In this way, Repetto stated that given these results, at first the impact on the markets had a “negative effect”, although later “there was some degree of recovery” when the president of the central bank spoke, Jerome Powellwho He maintained that the following increases will be made at “a moderate pace”.
For his part, the economist Gustavo Ber pointed out to this medium, that “markets took the Fed’s decision relatively calmly since the pause was discounted, beyond the tone ‘hawkish‘ arouses some concern regarding renewed rate hikes in the future, although it will depend on the evolution of macro data, especially employment and inflation”.
Finally, Repetto concluded that the market is focused on “the Fed beginning to retrace the path”, although for this “fairly benevolent conditions should be given in macroeconomic terms”, such as the drop in inflation to 2%, and “That is going to require a lot more effort, so it is likely that we will have rates at these levels for quite some time”.
Source: Ambito
