August 17, 2022

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The market is holding its breath before a new interest rate announcement from the US central bank - it may be the first time since 1980 that the rate has risen twice in a row.

The market is holding its breath before a new interest rate announcement from the US central bank – it may be the first time since 1980 that the rate has risen twice in a row.

The results season continues unabated until this week, with oil companies Equinor and Vår Energi giving the numbers right here at home. In the US, the stage is set for earnings releases from tech giants Apple, Amazon, Meta and Microsoft.

On Wednesday, however, what the market will follow closely during the day is the new interest rate announcement from the US Federal Reserve (Fed).

It’s hard to walk away from the Fed. The market is now pricing in a high probability of a threefold rate hike. In that case, it would be the first time since the 1980s that the Fed has hit three meetings twice in a row, says chief strategist Anders Johansen at Danske Bank.

A triple increase means an increase of 0.75 percentage points.

The Fed’s interest rate decision will be released on Wednesday evening, Norwegian time, and a month after the central bank announced a decision Rate hike three times at the meeting in June. It was the largest single increase since 1994.

At the same time you have Inflation, i.e. rising prices, only keeps rising.

dangles away

Before the Fed meeting on Wednesday, the key interest rate for the United States was in the period between 1.5 and 1.75 percent, and after the meeting in June, it became clear that all members of the interest rate committee imagine that the key interest rate will be higher than three percent of before the end of 2022.

Not until after 2024, members envision a key interest rate of less than three percent. So the prospects are greatly improved.

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When the Fed first raised interest rates in March of this year, to between 0.25 and 0.5 percent, the majority of interest rate committee members believed in a policy rate of one and a half to two percent by the end of the year. A minority expected a policy rate of two to two and a half percent by the end of the year.

Chief Strategist Johansen believes that not only the market, but also many members of the Federal Reserve’s interest rate committee, have been pricing and hinting at several triple highs, and that sends a clear signal.

– It’s a sign of how far away you are, he says.

In just six months, the US key interest rate has been raised from nearly zero during the pandemic, to nearly 2 percent when the third quarter of 2022 has just begun. The last time the Fed increased by the same amount was in 1994, when the central bank raised its key interest rate by three percentage points in a year and a half. Then there were many double hikes in a row, but never two triple hikes in a row as now.

The lead up to this was in the late 1970s and early 1980s, when the key interest rate in the United States rose from six to nearly 20 percent in just three years, and when there were several jumps of more than one percent under the then central bank governor. Paul Volcker.

As now, it was the high inflation of the time that had to be fought.

Fear of stagnation

In the wake of the Corona pandemic, prices have skyrocketed, and when the June numbers for US inflation came in just less than two weeks ago, it showed an inflation of 9.1 percent year on year.

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That number was the highest since 1981, the decade when inflation peaked at just under 15 percent.

The background to the price hike lies, among other things, in the high level of activity in the US economy, as well as a tight labor market.

At the same time, global trade has been affected by bottlenecks and supply problems affecting both the industrial and service industries.

It will be interesting to see what the Fed says about the shape of the US economy. Will they admit that he calms down? That’s what you really want, because inflation will go down if unemployment goes up. But it is difficult to say in political terms, notes chief strategist Johansen.

In both the US and Europe, fear of a recession is growing on the way. Bloomberg reports, among other things, that US gross domestic product, that is, the sum of goods and services produced in the country, is set to rise 0.5 percent in the second quarter. After a 1.6 percent drop in gross domestic product in the first quarter, the first half of the year is likely to be the weakest in terms of growth in the wake of the pandemic.

Preliminary GDP numbers will be released on Thursday, the day after the Fed rate announcement.

A recession is often characterized by negative growth in two consecutive quarters.

Bloomberg economists write in an analysis:

Federal Reserve Governor Jerome Powell faces a huge task in his press conference. He will have to confirm the Fed’s 2 per cent inflation target, acknowledging the slowdown in the economy, where GDP numbers are likely to be negative. The analysis says it’s hard to be hawkish when activity in the economy is way more backward than when it was strong.”

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The terms hawk and dove are opinions about where the rate of interest should be as a result of economic development. While tightening means interest rates must be high to keep inflation at bay, cautiousness means interest rates must remain low as a result of low inflationary pressure.

rush results

At the same time, the rush of results continues here at home and in the USA.

On Tuesday, energy company Scatec and relatively newly listed oil company Vår Energi will present their quarterly figures, before Oslo’s largest company Equinor follows up on the Poor’s on Wednesday.

In the US, the market is eagerly awaiting numbers from several tech giants, including Google owner Alphabet and Microsoft, Facebook Meta owner, Amazon and Apple.

It comes after Snap’s plunge in the stock market, when the company didn’t provide guidance for future quarters during last week’s presentation.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using the links that lead directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.