While the views that the US Federal Reserve (Fed) will slow down the rate of increase in interest rates after the inflation data in the USA, which fell below expectations, are strengthened, analysts emphasize that the Bank will not change its final target by looking at a single data, and it is important how long the tight stance will be maintained.
The decline in annual inflation to the lowest level in 9 months with 7.7 percent in October and the retreat of core inflation from the peak of 40 years with 6.3 percent annually increased the expectations that the aggressive tightening process will slow down.
While inflation data, which fell below expectations, encouraged Fed officials, signals of a slowdown in monetary policy tightening began to be given in the guidance made.
The expectations for the December meeting of the Bank, which remained uncertain before the data, were shaped in favor of 50 basis points with a probability of 81 percent.
"The tightening process will continue, albeit in smaller steps"
In the face of the increase in inflation, the Fed made its first interest rate increase by 25 basis points in March this year. The Bank, which became increasingly aggressive in the following period, increased interest rates by 50 basis points in May and 75 basis points each in June, July, September and November. Thus, the federal funds rate rose to the 3.75-4.00 band with a total increase of 375 basis points.
Although inflation in the US dropped to 8.5 percent in July, 8.3 percent in August and 8.2 percent in September, after reaching its highest level since November 1981 with an annual 9.1 percent in June, it is above expectations. continued to make an appearance.
Analysts said that the latest data gave Fed officials a sigh of relief at a time when criticism against the Fed was increasing due to the fact that inflation remained high despite aggressive interest rate hikes.
Reminding that the investors, encouraged by the hopes that the effect of the implemented policies are starting to be seen, strengthened their positions in the stock markets, analysts noted that the desired result could not be reached in terms of labor markets, company profitability and wages, and the Fed had no choice but to continue the pressure.
Analysts stated that it should not be forgotten that the tightening process will continue, albeit with smaller steps, and emphasized that when the Fed will reach the final target in terms of inflation expectations will be critical.
"Concerns about wage, demand and inflation spiral may increase"
Piri Reis University Vice Rector Prof. Dr. Erhan Aslanoğlu said that the Fed will continue to monitor the figures for the next period and other inflation indicators, even though the October inflation data in the USA fell short of expectations.
Pointing out that the data that came in below expectations could create a wealth effect by keeping the risk appetite in the stock market and other financial markets strong, Aslanoğlu said:
"People can keep demand alive in the USA by thinking that purchasing power has increased. This may increase concerns about wages, demand and the inflation spiral. Therefore, the Fed will not change its decision by looking at a single data. When we look at it, the Fed's 50 basis point interest rate for next month's meeting will increase. However, I think that the inflation, growth and wage data in the next month will be closely monitored and monetary policy will be shaped accordingly.
Emphasizing that the Fed's ultimate goal is to prevent inflation expectations, Aslanoğlu said that inflation expectations for the next 12 months are currently at the level of 5-5.5 percent, and that this may decrease to the 4.5-5 percent band in the coming months.
Stating that the Fed will probably try to balance interest rates above 5 percent, Aslanoğlu said, "I don't think the Fed's ultimate goal has changed, but if the data continues to come in a supportive direction, if the wages do not see demand pressure, then the Fed's interest rate hikes will be slowed further and the policy will continue. I think we can talk about the possibility that the interest rate will not exceed 5 percent." he said.
"It is unclear where the interest rate will go and how long it will stay tight"
Orkun Gödek, Director of Deniz Yatırım Strategy and Research Department, stated that he expects the Fed to slow down the rate of interest rate hikes to 50 basis points at the December meeting, and that the general market consensus is in this direction.
Emphasizing that there are several important criteria followed by the Fed, Gödek made the following assessments:
"One of these is the structural course of inflation. The 40-year peak in inflation may cause risks such as early relaxation and distrust in policy. The Fed also takes this into account. Therefore, it is possible to answer questions about the uncertainties of the point where the interest rate will go one step further than the rate of increase and how long it will stay tight. "Another issue that the Fed is watching is the continuation of the inequalities in employment and the strong market image despite the signs of slowdown. This is important both for wages and for the end of the policy. Looking at the market swap pricing, we can see that the upper point in the policy rate is in May-June. It is expected to be in the range of 5 to 5.25. The expectations in question were behind a calendar and level 1-2 months ago. We call this the serious uncertainty coefficient."
Comments
No comment yet.