The Fed raised rates and gave investors 30 minutes of happiness

Yesterday FEDin line with expectations, he raised interest rates by 0,75 pp. Investors, however, waited for information when the Fed may end the current cycle of hikes. The statement after the meeting pointed to a possible change in the FED's policy and a faster end of the cycle, which made investors euphoric. However, when Jerome Powell entered the podium after 30 minutes, it turned out that there would be no policy change.

The Fed did not surprise with a raise, but ...

In line with market forecasts, the FED yesterday raised rates by 0,75%. up to 3,75-4 percent At the moment, US interest rates are at their highest since 2008. And the current rate of raising rates is the most aggressive until the early 80s. This year, the rates have already increased six times, by 3,75 percentage points. together.

The raise itself was not a surprise as the financial market expected it. This is a huge advantage of the Fed, which - unlike the Polish MPC - communicates well with the market and rarely takes decisions that go beyond the market consensus. Apart from the decision itself, the market carefully analyzes the announcements after the meetings and listens to the words of the head of the Fed Jerome Powell. This time it was no different, and yet quite a serious settlement had arisen.

The most important question that investors and analysts are asking themselves today is when the Fed will end the rate hikes cycle and to what level they will rise. The market expects that after the end of the rate hikes cycle, or when the moment of its end is known, the situation on the stock markets will improve significantly and the market will start to recover after months of declines. Everyone was looking for the answer to this question in the official statements of the Fed and its representatives. The decision to raise interest rates was released yesterday at 19:00 p.m. Polish time (14:00 p.m. New York) with the announcement. In its content, the market sensed a change in tone, indicating that we are already approaching the end of the rate hikes cycle. It caused an immediate euphoria on the dance floor, within minutes S & P500 index increased by over 1 percent. However, this state did not last long, as half an hour later (at 19:30 Polish time) the conference of the head of the Fed, Jerome Powell, began. Contrary to the announcement, his tone was decidedly hawkish, which acted like a cold shower on the market. Ultimately, the S & P500 ended with a decline of 2,5 percent. A similar situation also occurred on the currency market, where the dollar first weakened and then strengthened even more.

Rates will rise even more - by how much?

The market currently estimates that there will be two more rate hikes in the US: in December - by 0,75 pp. and in January - by 0,25 pp. Ultimately, the rates would be between 4,75 and 5 percent. The rate hike in the US took place six days after a similar decision European Central Bankhowever, the cycle of rate hikes in Europe is shorter and the ECB is much more cautious in its rate hikes. Currently, the basic ECB interest rate is 1,5%.

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.