How far will the Fed raise interest rates?

Financial issuesJun 15 ’22 10:50 AMauthorRemy Cook

The Federal Reserve, the US umbrella organization for central banks, is expected to announce this evening that it will raise interest rates further in order to counter high inflation in the US. The financial markets are eagerly awaiting the decision that may go further than previously mentioned.

According to the editor-in-chief of the economist Jasper Lukezen, Jasper Lukezen, a huge increase is expected. “The general consensus – which is what most analysts expect – is a 75 basis point increase. So 0.75 percent. And those expectations rose sharply, because last week they were still thinking about half a percent.

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Lukkezen believes that last Friday’s bad inflation news made the Fed’s decision to raise interest rates even more difficult. And it’s not only about this increase, but also about an additional increase in June. At first they thought nothing would happen in June, but they are now looking at another 0.75 percent increase in July. So it suddenly became very fast.

Biggest increase in 22 years

These decisions follow an earlier decision in May, when interest rates rose by fifty basis points. Biggest increase in 22 years, but will the new increases be enough to curb inflation? “Probably,” Lukkezen continues. But it will take some time. If you want to curb inflation with a sharp rate hike, you really have to push the economy into recession. Out of the economic boom, this is very painful.

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Painful, but not historical. Lukesin thinks of the 1980s, when then-Fed Chairman Paul Volcker raised interest rates at a similar pace. He then managed to bring down inflation, but stagnation came on top of that.

European influence

If the Fed decides to raise interest rates that far, the European Central Bank should follow suit, Lukkezen believes. But not at the same pace, but it increases pressure on the European Central Bank. European central banks have already said they will raise rates by 50 basis points in July, but there is pressure from all sides to raise rates soon after that. If the economy in the United States cools down because it is necessary to reduce inflation there, we will, of course, take note.

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