Rate hikes are working, the Fed just made another one

As expected The Fed raised interest rates by 50 pp The hike is lower than previously expected by the markets, but the previous rate hikes worked and inflation began to drop sharply. Other central banks may follow a similar path.

Inflation is slowing down, interest rate hikes are having an effect

U.S. price growth slowed from 7,7 percent to 7,1 percent. in October to 6,3 percent. in November. Core inflation also fell from 6 to XNUMX percent. Only service price inflation has increased, which is the only potentially worrying element in the price data. The drop in inflation is a clear proof that the earlier rate hikes are working. And the most dramatic series of rate hikes in the history of the Fed is paying off. The decline in inflation is also helped by external factors related to the fall in commodity prices.

Declining inflation is a signal that the FED may raise rates slower and a little longer than originally expected. The December increase is therefore 0,5 pp. instead of the previously expected level of 0,75 pp. Currently, the basic rate is 4,25-4,5 percent. Markets now predict that there will be one more rate hike, although it remains an open question whether rates will exceed the 5% level.

Boom? Relax…

The end of the series of interest rate hikes in the US is an opportunity for the markets to come out of the bear market and recover calmly in 2023. We expect this process to take place gradually. Therefore, the valuations of many companies may improve next year, while profits and financial results will deteriorate. This will be the result of the economic slowdown that will inevitably await the American and global economy in 2023.

On Thursday we will see rate hikes in the euro zone and Great Britain. It seems that after the decision FED także EBC i Bank of England may decide to increase by 0,50-0,75 bp.

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.