Bank Mizrahi: There are indications that interest rate increases will ease at the end of the year

Yoni Fanning Mizrahi Tefahot Markets Economist (Photo by Ofer Hagiov)

It is the monetary policy in the world that will decide whether we go into recession or not. The central banks do not have too many options except to raise the interest rate, but Yoni Fanning, the market economist of Mizrahi Tefahot Bank, says that indications are beginning to accumulate that in the US the interest rate peak will come at the end of the year, and in Israel we can already see in the interbank trade in contracts on the index that inflation should converge to the targets within a year.

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– In the US, the recession is inevitable? “It’s a question of indications. There are many forecasts for a reduction in GDP, which is consistent with the common definition of a recession. The position of the White House and the central bank is that the definition of a recession is different from the dictionary definition. Their definition includes the labor market that does not speak of a recession.”

– And when you prepare your analyses, where do you stand? “I assume that there could be a situation of a decrease in GDP, which is consistent with additional indications, but it is more a matter of definitions than improving real activity.”

– Does this mean that the recession will be in Excel and not translate into something real? “You see, the Federal Reserve has responded to additional indications such as confidence indices and purchasing managers that there is a certain decrease. But you have to remember that many things have happened since the Corona virus and like in Israel, in the US there are also people who received salaries during the Corona period and saved money and there are those who did not. And, there are those whose ability to consume is significantly less.”

– Where is Israel in this range? “In Israel, we have a strong employment market, perhaps even the strongest. There were good data here, such as unemployment at a historic low. The Israeli consumer element is positive, in contrast to the US, where it is negative. The price increases we’ve seen have affected consumer sentiment and we’ve seen that in the credit cards that have been issued and there will be a decline but right now, we’re not approaching anything that looks like a recession. I don’t think the data will be negative.”

– The stock market shakes from ups and downs, could it be that we are at the bottom? “In the US we are seeing an impressive recovery, there is a situation of interest rate hikes and it was rare for the market to recover the way it did. In Israel, we felt the declines less, so we also feel the increases less, it works in all directions, less declines, then less increases.”

– Could it be that we are at a point where we should cautiously open to the stock market? “We did not give an indication of another downward blow. But there are many processes happening here. The behavior of the market has been impressive until now, and when you look at the American market, you have to see the continuation of the monetary process in light of the drop in energy and commodity prices, and here there could be an improvement, and by the way, the same in stocks. But in Israel, we will see the It’s less because in any case we reacted less to the declines.”

– Let’s talk for a moment about the dollar against the shekel. “The current account will continue to be positive and the high-tech gives strong indications that the concerns about the industry still exist but do not change world order, and this is despite the decrease in global demand. It is important to understand that when we look ahead, energy prices in Israel will decrease less than the rest of the world, and in one way or another there is a transformation in the world of switching to the use of other raw materials for energy production. It won’t happen in the coming year, but in the longer term, after the winter in the coming spring, the European market will be fundamentally different – there are basic processes here that will drag the dollar down.”

– Inflation in Israel? “Currently in the trading of contracts between the banks on inflation, we see a moderation in the indices later this year and this means that we are already talking about a return to the targets of the Bank of Israel. As for the USA, we see the markets converging on the assessment that interest rates there will reach a peak at the end of the year.” he concludes.

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