The market replaced the FED in raising rates in the US

The Fed left interest rates unchanged at yesterday's meeting. They amount to 5,25-5,5%. and remain the highest in twenty-two years. It is still unclear whether the cycle of price increases has ended. The strong increase in bond yields that we have seen over the last month is essentially the equivalent of a rate increase.

Has the cycle of price increases ended?

At yesterday's meeting, FED decided not to raise rates again. Mainly because the bond market sort of raised rates for him. Since the beginning of September, the interest rate on 10-year US bonds has increased from 4,1 to 4,71 percent. currently, in the meantime exceeding 5 percent for a while. This clearly tightened the financial conditions for doing business in a way comparable to the rate increase by the Fed.

In the current cycle, the Fed has already raised rates eleven times, and this is the most rapid cycle of rate increases in years. However, we still do not know whether this cycle of price increases has already ended or whether another one awaits us. Jerome Powell did not rule out that the Fed would decide to raise rates in December. At the same time he stated that rate cuts have not been considered so far.

Soft landing scenario

The end of the cycle of increases is supported by strong economic growth in the third quarter and the fact that the labor market remains strong, despite some scratches on the glass. The previously mentioned increases in bond yields and debt costs also have an impact on the economy.

The Fed is prepared for a soft landing scenario, i.e. a situation when the US economy manages to avoid recession. However, it seems that it is still too early to completely rule out the possibility of its occurrence. All the more so because external factors (mainly tensions in the Middle East) may lead to this to a jump in the price of oil and other raw materials, which may make further fight against inflation much more difficult.

We expect another portion of data on the American labor market on Friday, and inflation data for October will be released on November 14. In September, CPI inflation in the USA it was 3,7 percent y/y.

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.