| Ronen Menachem, Chief Economist of Mizrahi Tefahot
On the face of it, the Federal Reserve is about to launch a nimble round of raises this week, which could amount to 5-4 consecutive raises. On the route we can deduce what the new economic, which will be published this coming Wednesday in the US and indicate, in addition, on the expectation of faster and less rapid product growth than those observed in the previous forecast from December.
It should be noted, however, that in recent years there have been many instances where the actual interest rate hike (as much as it has occurred) has been slower than the Fed anticipated earlier this year.
Also, while the Fed has recently stressed at every opportunity that inflation is high and moving away from its target, so raising a swift interest rate is the required step, but at the same time the Fed takes the trouble to mention that it has not abandoned the data-dependent policy.
That is, if along the way it turns out that the U.S. economy is growing more slowly, hardening, or employment improvement is stalled, the Fed will not hesitate to halt the sequence of raises and wait.
Capital markets have a tendency to run ahead and anticipate moves of relief or tightening, and it is not inconceivable that this will happen this time as well. That is, if the war in Ukraine escalates, lengthens and does real damage to the world economy, which has only recently been (and not completely) rescued from the difficulties of the omicron.
It should also be borne in mind that a possible stagflation scenario – a state of economic slowdown coupled with a rapid rise in inflation – cannot be addressed by raising interest rates (certainly not fast) or monetary instruments alone, and if the Fed thinks so, it will not raise interest rates.
Alternatively, if it turns out that inflation is halted faster than expected. The latest employment report found that the hourly wage in the US, whose rapid rise is considered one of the main causes of the current eruption, was halted and did not rise as economists estimated. .
Naturally, the appreciation of the dollar may also delay the rise in prices in the coming months. The Fed is also aware of the greater-than-usual difficulty in forecasting inflation data in recent months.
While the guns are roaring and households are already showing signs of worrying about eroding their future incomes, it is not at all certain that the Fed’s path will accelerate, and it is not inconceivable that as interest rates rise, there will be longer breaks between raises.
In general, there is currently a sharp debate within the Fed over the question of how much to raise interest rates and at what rate, and there is no one-size-fits-all approach. Can very well see that in the forecast that will be published there will be relatively large differences between the interest rate tracks recommended by the voters. These differences, too, not just the average route, will be of great importance to the markets in the future.
In any case, towards Wednesday evening (Israel time), when the interest rate announcement and the Fed’s economic forecast are published (and Chairman Jerome Powell will edit), the feature will increase in the financial markets.
The author is the chief economist of Mizrahi Tefahot Bank. This review is not a substitute for investment marketing that takes into account the data and special needs of each person.