Guy Beit Or (photo by Moshik Brin, Psagot)
“Powell came as a hawk, a confused hawk at first, but a hawk nonetheless – when he made it clear to the markets that there is no stopping interest rate hikes, and that the interest rate at the end of the process will be higher compared to what they previously estimated.
More in-
“As expected, the Fed raised the interest rate by 75 basis points, and changed the wording of the statement in a way that conveys the message to the markets that they will soon move to interest rate increases in smaller portions. At first the markets reacted positively to the statement with increases in stock markets and decreases in bond yields.
“Nevertheless, Powell came to the press conference to make it clear to everyone that there is no reason at all to hold a conversation about stopping the process of raising interest rates in the near future, since the inflation picture has only worsened, and the labor market continues to be too tight – with wage increases that correlate over time with a significantly higher inflation level from the destination.
“That’s why Powell said that they will have to raise the interest rate to higher levels compared to what they estimated in September, but due to the fact that they are now entering a relatively tightening policy, the rate of interest rate increases will slow down,” Beit Or said.
“At the end, Powell was asked, as always – is a “soft landing” still possible? According to Powell, the probability of this continues to decrease, and has been decreasing for the past year, although it is still possible. The window has narrowed because inflation is not decreasing. They would have expected So far seeing a decrease in inflation but it is still not really happening, at least not to the extent they wanted to see. Due to the fact that the inflation picture has worsened, the interest rate increases will have to be more significant and therefore the ability to escape a recession is smaller.
“At least in our estimation, and not from today, a significant economic recession in the US is inevitable,” he says.
As for our little piece of God in Israel, Beit Or says that “although the inflation environment in Israel is lower compared to other countries, it is still high, and the inflationary risks to the Israeli economy continue to be very significant. The recent interest rate increases in Europe, and now in the United States, are expected to provide further headwinds The Bank of Israel, which in our estimation is expected to raise the interest rate by another 75 basis points at its next meeting to the level of 3.5%” he concludes.
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