Expected impact of FED decision on interest rate in markets
The Fed’s interest rate decision which was expected for weeks, has deeply affected the markets. Following the decision, gold and oil prices declined and stock markets relaxed. Eyes are on the risks that high interest rates could create in the economy.
Yesterday, Fed (US Central Bank) decided to implement its biggest rate hike since 1994. The Fed, which raised interest rates by 75 basis points to a range of 1.5 percent to 1.75 percent, raised its year-end interest rate forecast to 3.4 percent.
However, as the cooling of the economy will slow down growth, high interest rates also bring with it the risk of economic recession. It is stated that the economy is in danger of stagflation if interest rate decisions cannot suppress inflation. In this case, it is noted that both unemployment and the general price level may increase, and the economy may experience stagnation and inflation at the same time.
EVALUATION BY EXPERTS
Some experts have made important evaluation regarding this recent development with following comments:
“The Fed has set a faster tightening path this year to show that it is aware of its role in monetary policy. In doing so, it will also need to avoid stagflation. This year’s hard path is also not foreseen in the same way next year for this reason. The Fed will act according to macro data in the future.”
Although there was no extraordinary movement in the markets due to the increase in prices of the markets by 75 basis points, commodity prices were pulled down due to the decrease in demand. The market repercussions of the decision were as follows:
MOVEMENT IN DOLLAR RATES
Investors had fully priced the 75 basis point rate hike before the Fed’s decision, reflecting that there might be similar increases at subsequent meetings after last week’s sharp U.S. inflation data. However, the dollar turned its direction down during yesterday’s press conference of Fed Chairman Jerome Powell.
The dollar index, which measures the dollar’s performance against major currencies, partially lost value and reached 104.82. Dollar/TL was traded at 17.27 levels in the morning.
