| Ronan Menachem, chief market economist of Mizrahi Tefahot
The road was very long – said the man in Leah Goldberg’s song. The old man sat down to rest by the side of the road. By that equation, and the Federal Reserve’s messages on Wednesday evening, he is still a man, and nowhere near old.
Bottom line: an increase of 50 basis points was in line with market estimates. However, the expected interest rate at the end of the process (2023) also increased by 50 basis points (many estimated/hoped that it would not change) – and therefore the gap between it and the actual interest rate still stands at 75 basis points.
Also, the Fed now estimates that both it and the basic inflation in the US, which better reflects the price pressures within the US economy and on which the Fed focuses, will be higher than it thought in the summer, and both will remain far from the inflation target. ) and the bonds, which now reflect this in the increase of their redemption yields.
The market finally “chose” to be more impressed by the fact that the interest rate at the end of the road will be higher, and less by the fact that this time the interest rate only increased by 50 basis points, but until it decided, it showed high volatility.
As we emphasized recently, the Fed will be cautious, despite the low increase in the consumer price index in the last month, and will not rush to signal an imminent end to interest rate increases. This aligns with his repeated messages about the importance of the “final station”, rather than the pace of getting there. According to the market reaction, this message has been well received.
Indeed, in his words, Fed Chairman Jerome said that the latest inflation data are welcome, but more actual evidence is needed to confidently conclude that inflation is indeed falling.
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.