The Fed today raises rates for the sixth time in a row, the fastest pace in 40 years

Barring any surprises, the United States Federal Reserve (Fed) will today raise the price of money by 0.

Thomas Osborne
Thomas Osborne
01 November 2022 Tuesday 22:41
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The Fed today raises rates for the sixth time in a row, the fastest pace in 40 years

Barring any surprises, the United States Federal Reserve (Fed) will today raise the price of money by 0.75%, bringing interest rates to 3.75%, a level not seen since 2007.

It will be the fourth consecutive increase of this magnitude and the sixth since March to try to stop the rise in inflation, which is currently at 8.2% (October data).

This is the fastest rate hike by the Fed since the 1980s, when Volcker was chairman battling double-digit inflation. Then the rates went from 10.5% in 1979 to 17.5% in April 1980.

Currently, the US core inflation rate – discounting energy and fresh food – has yet to show any signs of peaking, hitting a new four-decade high of 6.6%. As can be seen, even after the latest restrictive interventions by the Fed, real price growth continues to be higher than the level of interest rates, so it is likely that in the future there will be room for further rate hikes until at 4%-5%.

From there arise the unknowns about the future direction of Powell's policy. “We expect the Fed to hint that the pace of rate hikes could slow from December, although it will be a hard-fought decision,” say analysts at Ebury, a global fintech for international payments and foreign exchange.

A report published by the Wall Street Journal suggests that some policymakers are becoming increasingly uncomfortable with the impact aggressive rate hikes are having on the US economy. In recent weeks there have also been signs of a dovish turn among several influential Fed members. Brainard, Evans and George, among others, have expressed concern about hikes beyond this week's meeting, and are likely to this discrepancy is alluded to in official communications. "In our opinion, the most likely scenario is a return to a 50 basis point hike in December," they underline in Ebury,

Although the US economy has briefly slipped into recession this year, it continues to create jobs: US job openings unexpectedly increased in September, with 10.7 million openings, suggesting that the US labor market is not it's getting cold so fast. This means that Powell should not shake the pulse until there are no indicators that show that inflation is under control.

“However, there is a real risk that monetary tightening will go too far. The line between 'restrictive' and 'excessively restrictive' is very fine," said Gilles Moëc, chief economist at AXA Investment Managers. Analysts believe that in 2023 the Fed should enter "pause mode" to assess the impact of the latest rate hikes.