| Ronan Menachem, chief market economist of Mizrahi Tefahot
The discussions that preceded the Fed’s latest interest rate announcement (which, as I recall, came out on 25 NB), did not bring much new information.
The hawkish attitude of the members of the Fed has been known for some time and the speakers in the media repeatedly emphasize that it is still high and the rate of its decline is too slow.
The very fact that a number of members believed that it should go up by 50 bp only serves as a confirmation and strengthening of the widespread opinion among the Fed that there is still a long way to go before the goal is achieved.
In these messages, the Fed is trying to moderate the demand within the American economy and thereby also moderate the price pressures.
The data published since the discussions on the labor market and inflation only strengthened this.
Now it seems that a soft landing scenario is certainly possible – and does not necessarily serve the Fed’s needs.
What is interesting:
· There are differences of opinion in the Fed between those who believe that the monetary environment is restrictive enough and those who believe that it is still too easy. These differences of opinion may increase the uncertainty regarding the timing, intensity and duration of the next interest rate hikes.
· The Fed makes a distinction between the fall in inflation and its horizontality. According to the record, there are many items that still rise at a much higher rate than the 2% target, and the larger the number, the more difficult it will be for the interest rate to have a downward effect on inflation. Also, these are sections that are not related to the inflation of commodity prices (such as non-tradable products and services). It will be difficult to moderate the increases in the prices of these items, partly due to the tight labor market and the increases in
· As for commodity prices, here too there is a source of concern and caution from the Fed’s point of view, as appears from, which was published at the end of the week and was significantly higher than expectations. The recovery in China is only likely to create additional pressure on commodity prices in the future.
Now it seems that 2-3 more interest rate increases of 25 basis points are certainly possible and it is quite possible that the next interest rate increase will again be 50 basis points, as it was before the last, smaller increase of 25 basis points.
Bottom line:
· The actual inflation is still much higher than the target and this in all forms of measurement. Its descent is too slow.
· The following interest rate measures will take into account the monitoring of the progress that has already been made, since the interest rate mechanism has a delayed and even slow effect on the persistent, or “sticky”, components of inflation.
· A data-dependent policy will continue, so that the tension and vigilance before each announcement will be high and so will the volatility of the markets before and after each announcement.
The writer is Chief Market Economist of Bank Mizrahi Tefahot. This review is not intended to be a substitute for investment marketing that takes into account the data and the special needs of each person.