Al-Marsad newspaper – AFP: Facing inflation that continues to rise in the United States, which has become an economic priority for President Joe Biden, the US central bank is preparing to raise key interest rates for the third time, Wednesday.
The Monetary Policy Committee, the Federal Reserve’s decision-making body, meets on Tuesday and Wednesday. And it seems that a half percentage point, or 50 basis point, rate hike is certain, according to what “AFP” quoted.
But it is the assumption of an even larger increase, of three-quarters of a percentage point, or 75 basis points, that is stirring the markets now. This increase will be the first since 1994.
“Markets are beginning to take into account the risks of 75 basis points at the Fed meeting next week,” Sean Osborne of Scotiabank told the agency.
This is due to inflation. It started a timid slowdown in April, which gave hope that the worst was over.
But the May numbers, which were issued on Friday, were a wake-up call for a return to reality, with a rapid re-rise, setting a record in 40 years, with 8.4 percent on an annual basis, and 1 percent on a monthly basis, according to the Consumer Price Index Index.
The Fed prefers the personal consumption expenditures index, released later in the month, which also slowed in April to 6.3 percent on an annual basis, but still well above the 2% target, which is good for the economy.
However, Osborne seems skeptical of the hypothesis of a sharp rise that is expected to provoke turmoil in the markets. But he cautioned, “It’s a risk, of course.”
On Friday, a quarter of market workers expected a sharp rise of 75 basis points, while three quarters estimated a 50 basis point increase, similar to the last meeting in early May, according to an assessment of CMA Group futures products. But on Saturday, only 3.6 percent thought the Fed would raise interest rates by 75 basis points.