May 23, 2022

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It's the Fed's turn, when and how much will interest rates rise in 2022?

It’s the Fed’s turn, when and how much will interest rates rise in 2022?

it’s time. This Tuesday begins the two-day meeting of the Federal Open Market CommitteeThe Open Market Committee of the US Federal Reservein one of their most important and decisive matches of the year. This comes after several important events, which changed the expectations of raising the interest rate at this very moment and also in form and substance for the remainder of 2022.

But first things first. The Fed’s balance on its asset purchases and holdings which during this crisis period, Helps to acquire assets in the market. The Federal Reserve, as expected in its minutes issued in early April, Its holdings will reduce assets by a maximum of $95,000 million per monththe majority 60,000 in Treasuries and the rest 35,000 due to mortgage-backed securities.

But Bloomberg highlights that This level of caps will be lowered from Maywith expected Treasury reductions of 20,000 million and 15,000 in mortgage-backed securities, Reach those caps in a three-month period. Now, as we can see in this Fed chart Its global assets amount to $8.9 trillion, It was supported by the massive buying carried out at the expense of the epidemic. progress By the beginning of 2024, the Federal Reserve balance contains about $6.4 trillion.

Historical balance sheet for assets FED

This would be the first step but in terms of raising interest rates, will be the second to award, after the increase scheduled in March, a quarter of a point, Thus consolidating the first increase since 2018 at the expense of Inflation, which in February reached levels in the United States of 7.9%.. Then the situation was different: gradual hikes, not significant, but progressive, with six more expected to reach an average level of 1.9% at the end of the year.

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Now things are very different. The inflation rate reached 8.5% at its highest level in the last 40 years An engineering advance and the Fed is already anticipating its more aggressive and “hawkish” view for May. A hawkish formula prevails, calling for a blanket halt to price hikes, but with a difficult balancing act set to prevent the country from sliding into recession. Price control with price hikes, but with a head.

So The market has already discounted a 50 basis point rise in the “price of money” this month And that horizonEven held in the June meetingfor later Shows more moderate increases, in half, of 25 basis points in the rest of the year reach a group of Between 2.25 and 2.5%. That’s how they see it from Bloomberg, with its survey of 48 analysts last week, even though markets see a tighter price horizon: 2.75% this year.

A consensus was gathered about the Federal Reserve last week by Bloomberg

Although there are those who see an even more aggressive horizon, after the half-point rally that was discounted in May, they recognize that inflation will continue at very high levels. yesIt comes to Nomura economists who expect the Fed to raise 75 basis points in June and the same amount in July.

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