Fed wants to slow down rate hikes | Financial

Fed President Jerome Powell said in his explanation of the interest rate decision that the effects of the rapid and large rate hikes are still partly visible. He hinted that the upcoming increases won’t be that big anymore and will depend heavily on data.

Moderate

Asset manager Renco van Schie of Valuedge calls the statements clearly more moderate than expected. “That’s why you see stock prices continue to rise and bond yields and the dollar go down.” He points out that the market is now forecasting a 50 basis point rate hike in September. “But it could be lower if economic data disappoints and inflation figures better than expected.”

In mid-June, the Fed also raised interest rates by 0.75 percentage point. The central bank has not raised interest rates so quickly since the early 1980s.

Labor market strong

The statement accompanying the rate decision states that the Fed will continue to monitor inflation very closely. The war in Ukraine is fueling inflation while putting pressure on economic activity, policymakers said. As a result, corporate and consumer spending has declined slightly, the central bank notes, but the labor market is still strong. The Fed thus indicates that there was room for another sharp hike.

Due to the interest rate step, the key interest rate is at 2.25 to 2.5 percent. The increase was unanimous, unlike the previous step. At the time, a policymaker was not convinced of the need for such a large increase.

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