A new, aggressive, 0.75 percentage point rate hike. The indication of new hikes and, above all, the forecast of a decidedly faster and more intense tightening than that envisaged in June. These are the indications that emerged in the September meeting of the Federal Reserve.
The Federal Open Market Committee (FOMC), the Federal Reserve body responsible for monetary policy in the United States, announced an interest rate hike of 75 basis points to 3-3.25%, a level that was not reached by the 2008. This is the fifth consecutive rate hike, the third in a row of 75 basis points. In March, the US Central Bank announced the first interest rate hike (by 25 basis points) since December 2018.
The rise was expected, and the diagnosis of the state of the economy that emerged in the statement has remained little changed: above all high inflation, low unemployment, even if spending and production, which in July were considered only weakening, now appear to be in modest growth .
What really changed the picture was the “dots”, the indications on the path of rates provided by individual governors. In June, the median of the estimates indicated a point of arrival by the end of the year at 3.25-3.50%, a level just above the current one. Now the consensus measure points instead to 4.25-4.50%, which corresponds to at least another increase from 75 basis points plus one from 50 in the two meetings in November and December.
For next year, the Fed envisions raising rates a little higher, actually: to 4.50-4.75%, which however is 3.75-4% higher than the June projections. Therefore, what is proposed today is not only an acceleration of the tightening but also an increase of what could be considered an estimate of the terminal rate. It will now be important, President Jerome Powell said at a press conference, that the entire real yield curve reaches positive values. For 2024, on the other hand, the Fed envisages the beginning of normalization, with rates at the end of the year at 3.75% -4% (from 3.25-3.50% indicated in June), to pass in 2025 to 2, 75-3%. The long-run rate, an indication of the neutral rate or the central bank’s target, was confirmed at 2.5 percent.