FED: Don't worry too much about the banks

FED raised interest rates by 0,25 percentage points yesterday. percent to 4,75-5 percent. In this way, he sends a message to the markets not to worry too much about the situation in the US banking system. It also does not anticipate any major shocks to the economy, which – along with the continuing decline in inflation – may be beneficial for capital markets.

The Fed Raised Rates – But What Next?

Recently, the forecasts regarding the upcoming FED decision have changed significantly. Before the first problems of American banks, the market predicted that interest rates would be raised by 0,50 bps. percent Then, forecasts assumed that there might not be a hike at all and we would have to deal with a pause in rate hikes. Finally, the Fed raised rates by 0,25 percentage points. percent to 4,75-5 percent. and this is the highest level of interest rates in the US since 2007.

Quickly responding to the banks' troubles, the Fed provided them with access to capital so that they would not run into trouble due to a lack of liquidity. The FED's decision to raise rates means that it does not anticipate any major shocks to the banking market, which could result in a significant suspension of lending and had similar effects on the economy as an additional increase in official rates. It is likely that lending will slow down to some extent, but it will not have a major impact on inflation.

Inflation is still a problem

It is also clear that the FED is still concerned about elevated inflation - a scenario that the markets have discounted too much in recent days. If the problems of the banking system do not affect economic growth, which is most likely, the Fed may be forced to maintain higher rates for longer. Currently, the most likely scenario is another interest rate hike by 0,25 bp. percent, which will end the cycle. The expectations of Federal Reserve members currently (median) is a rate of 5,1 percent. at the end of 2023 and 4,3 percent. at the end of 2024 (increase from 4,1). This means that the period between the end of hikes and the start of cuts may be longer than we previously expected. High inflation and the good situation on the American labor market remain the key determinants of the FED's decisions.

For us, Poles, the height of interest rates in the US is also very important. On the one hand, American rates affect the situation on the global capital market, which directly translates into the value of investments and savings of many Poles. Also the currency market and the value of the zloty depends on the strength of the US dollar, which is also affected by the level of US interest rates. Thirdly, the economic situation in the US is an important barometer of the global economy and the possibility of a global one recession.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.