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The Fed may have to raise interest rates the most in nearly 30 years


Inflation peaking in May may cause the Fed to raise interest rates by 0.75% at this week’s meeting.

Just a month ago, US Federal Reserve Chairman Jerome Powell also said that the agency was “not actively considering” raising interest rates by 0.75% to deal with inflation. However, after May inflation hit a 40-year high, Wall Street thinks Powell may have to change his mind.

US stocks fell sharply last Friday and continued to plunge yesterday. The 10-year US government bond yield rose to 3.27% – the highest since November 2018. If interest rates increase by 0.75%, this will show that the Fed is really worried about inflation.

Raising interest rates at this level is not unprecedented, but also very rare. The last time the Fed increased by 0.75% was from the time of former Fed Chairman Alan Greenspan – November 1994.

The fed may raise interest rates the most in nearly 30 years

Fed Chairman Jerome Powell. Image: Reuters

The market is still skeptical that the Fed will raise interest rates so sharply at this week’s meeting. Investors are betting 60% chance that the Fed will raise interest rates by 0.5%. However, the probability of raising interest rates by 0.75% has also increased from 3% last week to 40% now.

Economists at Barclays think that the Fed will announce an additional 0.75% interest rate hike on June 15 “to bolster credibility and keep pace with inflationary pressures. The current game could turn into raising interest rates. as fast as possible”.

Economists at Jefferies also joined the 0.75% group. In a report last week, they said “inflation has not peaked, not even leveled. It is still accelerating and may continue to go up in June”. They said that “although the Fed hates to surprise the market, the soaring inflation forecast is an excuse for Powell. Given the current situation, no one will criticize the Fed for raising interest rates by 0.75%.”

Therefore, investors probably won’t completely rule out the possibility that the Fed will raise interest rates by 0.75% this week. And if that doesn’t happen, it could be the scenario for the next meeting next month. The figures show that the probability is now 50%. Even, the probability of raising 1% next month is more than 25%.

CNN consider this to be an extreme act. However, investors also seem to realize that when Powell and other Fed members repeatedly say their decisions are “based on the numbers,” they actually do. Inflation is still accelerating. And that is why the possibility of increasing profits by 1% cannot be ruled out.

Ha Thu (according to CNN)

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