November 29, 2022
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The US is expected to raise interest rates for the 6th time in a row this Wednesday to curb inflation

The US central bank, the Federal Reserve (Fed), will release its monetary policy decision this Wednesday at 15:00 (Brasilia time). The announcement of a 0.75 percentage point (bp) hike is expected, which if implemented would be the sixth consecutive hike in interest rates.

Investors are still on the lookout for statements from leaders that signal a slowing of the pace of rate hikes in the coming months.

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The fear is that continuing to raise interest rates to slow the U.S. economy — and thus curb inflation — will, by extension, lead the entire world into recession.

At the same time, if the central bank signals that it will ease the pace of monetary tightening, other central banks may be encouraged to do the same. In recent weeks, some have already offered small rate hikes, such as the Bank of Canada and the Reserve Bank of Australia.

Currently, US interest rates are between 3% and 3.25%, the highest level since 2008. In a September news release, interest rates were estimated at 4.4% at the end of 2022. Market analysts, however, already see a rate of 5% by the end of the year.

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On social media, former Treasury Secretary Larry Summers said Tuesday that there is a “growing chorus” for the Fed to stop raising interest rates soon, saying such a decision would be “very wrong.”

“History shows that hyperinflation, once established, is very difficult to stop. Most efforts to stop inflation have failed in the industrialized world. If the Federal Reserve fails to meet current expectations, rates will approach 5%, markets and others will take it lightly.

In short, especially given its past mistakes, the central bank should stay on course and evaluate things later.”

Fabio Fares, expert in macro analysis at Quantzed, expects the central bank to maintain a tough anti-inflationary tone. Even so, this Wednesday’s 0.75 pp hike, another 0.50 pp hike at the next meeting, in March, predicts an additional two hikes of 0.25 pp each until the end of the higher cycle.

– The job market is tight and inflation is entrenched. “Slowing the pace of hikes doesn’t mean the Fed will stop raising interest rates, but it does give it time to settle,” Fares explains. – The transition between raising interest rates and catching up with the economy is about nine months.

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On Tuesday, the Labor Department said in its monthly jobs report that U.S. job openings unexpectedly rose by 437,000 in September, suggesting strong demand for workers.

As a result, the number of available positions rose to 10.7 million, against an expected decline of 10 million.

In addition to the high number of opportunities in the job market, positive results in the third quarter balance sheets of the companies that make up the S&P 500 indicate that the economy is still hot, says Rafael Marquez, economist and CEO of Philos Invest. And it’s time to stop the bullish cycle.

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According to him, bringing US inflation to the 2% target anytime soon is practically impossible.

– The result is set in practice. The huge wait for an interview after the disclosure explains whether the central bank will start to slow down – commented Marquez.

If Fed Chairman Jerome Powell hints at a slower pace of December rate hikes, that could spark a positive mood in markets, leading to gains in Wall Street indices and reverberating in other countries’ stock markets.