November 30, 2022

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Signs of a double rate hike in December - E24

Signs of a double rate hike in December – E24

In the minutes of the meeting from the US central bank, it is clear that they are ready to slow down, and envisage an end to the interest rate increase of 0.75 percentage points.

Federal Reserve Chairman Jerome Powell.
published:

The Federal Reserve published the minutes of its interest rate meeting on November 1-2, which may help provide a clue to the future path of interest rates from the US central bank.

– The way it looks now, everything indicates that there will be an interest rate increase of half a percentage point at the next meeting, says Eric Bross, chief economist at Nordea.

– There will be a labor market report in the meantime, but the report must show a very strong labor market with high wage growth, if it is to change the next rate hike.

Bruce further believes that there is consensus within the central bank that the interest rate should rise, but members are divided on the question of how aggressively.

Most believe that interest rates have been raised too much now and they should slow down to see the effects of higher interest rates, because it takes time for higher interest rates to affect the economy. The minority believes that inflation is too high and places less emphasis on seeing how the interest rate will increase.

Several committee members were concerned about what aggressive monetary policy could do for financial stability. Moreover, many members expressed a strong commitment to curbing inflation, but at the same time, fewer members supported a higher interest rate path than previously thought.

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The Federal Reserve raised the key interest rate by 0.75 percentage points in November. The rate hike marked the Fed’s fourth consecutive increase in the interest rate by 0.75 percentage points.

After the meeting in November, the key interest rate was set in a range of 3.75 to 4 percent. It is the highest since early 2008.

Chief Economist, Eric Bross, at Nordea.

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Bruce thinks the minutes are a bit old since they are three weeks old. The latest rate growth figures were not taken into account, but he believes this only enhances the chance of a 0.5 percentage point hike in interest rates.

Price inflation in the US is well above the central bank’s 2 percent target, although it was weak in October. US price inflation eased to 7.7 percent in October, from 8.2 percent the previous month.

Developments in the labor market is another factor that the Federal Reserve looks at when setting interest rates. In October, 261,000 new jobs were created in the USA, and 193,000 jobs were expected to be created in advance. In the same month, wage growth was 4.7 percent.

During the press conference following the previous rate hike, Central Bank Governor Jerome Powell stated that the interest rate peak was likely to be higher than previously expected. However, he said there are likely to be less sharp hikes in interest rates at upcoming interest rate meetings, according to the bloomberg.