Markets predict that this year the Fed will raise the rate by a total of 250 bps as part of the fight against high inflation, which has not been observed in the country for the last four decades.
Representatives of the leadership of the U.S. Federal Reserve System (Fed), which performs the functions of the central bank, are ready to raise the interest rate immediately by 50 basis points (bp) to combat inflation in the country. This is evidenced by the report distributed on Wednesday on the March 15-16 meeting of the Fed’s steering committee on the open market.
“Many participants [of the meeting] noted that, since inflation significantly exceeds the committee’s target (7.9% vs. 2%), inflationary risks are increasing, and the rate, according to the participants’ estimates, is significantly lower than the long-term level, they would prefer that the target range of the rate be increased by 50 bp at this meeting,” the document notes…> However, in light of greater uncertainty in the near term <…> they decided that it would be appropriate to raise the rate by 25 bp at this meeting.”
Commentators note that such sentiments among representatives of the management of the financial regulator may mean an increase in the rate by 50 bps already in May. Markets predict that this year the Fed will raise the rate by a total of 250 bps as part of the fight against high inflation, which has not been observed in the country for the last four decades. The Fed is expected to raise the rate at least six more times before the end of the year. In March, the Fed chairman said that the financial regulator was ready to raise the base interest rate even more if necessary to stabilize prices.
In March, the Fed raised the base interest rate for the first time since 2018 – by 25 bps, to 0.25-0.5% per annum. In addition, the U.S. regulator intends to begin reducing the volume of asset repurchases from the market, agency debt obligations and mortgage-backed securities (MBS) at the next meetings. The previous increase in the Fed rate occurred in December 2018, in the last two years the Fed rate has been in the range of 0-0.25% per annum. The next meeting of the American regulator will be held on May 4, 2022.